Dear John #5: Return of the Roman Empire

Dear John

In the past you’ve said my view of the world is over-simplified because I blame many/most of the social and economic and financial sector problems I see as being related to “easy money.”  You admit easy money might be part of the problem but you’ve argued in the past it can’t possibly be the whole problem. 

  

Consider this chart I've copied below from clusterstock Chart of the day (at bottom of this post)

The declining share of silver in Roman coins illustrates the fact that governments have been debasing official money to pay for war and welfare programs at least as far back as the Roman empire.  We all know what happened to the Roman empire.  Obviously there were many proximate causes of the collapse of Roman empire, but I argue the underlying cause was a willful debasing of the official Roman monetary standard by Roman political elites that was forced upon these elites when the cost of war and welfare programs outstripped their ability to pay for these costs through direct taxation. 

As a history major you should appreciate how we are repeating history once again…

Since the Fed was established in 1913 the USD has lost 98% of its value as demonstrated in the following chart

From 1776 to 1913 the value of the dollar went up and down following alternating periods of inflation and deflation but the US dollar incredibly began and ended the period at roughly the same value.  One dollar in 1776 was worth one dollar in 1900.  Over the next 100 years the Fed sowed the seeds for the Great Depression with the low interest rate policy of the 1920s and then in order to ensure that no Great Depression ever recurred, the Fed ensured that neither positive or negative deflation ever returned.  Thus, we've had a policy of consistently moderately positive inflation that has resulted in the dollar losing 98% of its value since 1913. 

The Fed's monetary policy has succeeded since the 1940s to the extent it has prevented a return of the debt deflation cycle of the Great Depression, but it has failed miserably to the extent it also eliminated periods of "good deflation" that kept the value of the dollar constant over the course of the 1800s! 

It took us about 100 years for the Fed to do to the dollar what the Romans did to their currency in about 200 years…  the above chart recording the silver content of Roman coins begins in AD 61 and ends in AD 260; over this period the share of silver in the coins went from 100% to less than 5%. 

When government debases money (either literally like in roman times or virtually like in modern times when the Fed electronically "prints" money), this sets in train a series of unintended consequences that undermines the stability of economy, financial markets and society in general.   

Enlightened government can’t reverse these trends because enlightened government always costs more than it seems when the enlightened programs are designed.  Thus, what inevitably happens is that the government raises taxes until it can’t raise taxes any more and is forced to debase the currency to pay for the enlightened programs. 

Once the government debases money to pay for the welfare/war fare state it injects the economy and financial markets with corrosive and insidious distortions that sow the seeds of what Austrian economists call malinvestment.  When capital is systematically malinvested (thanks to distorted signals caused by debasing of money), an economy cannot renew itself and remain a dynamic going concern. 

That is why universal health care will never be part of the solution to the health care crisis in America or anywhere else in the world.  universal health care might seem to be working in Europe, but these countries are up to their eyeballs in debt which they’ve accumulated to pay for social welfare states.  It is impossible to “right size” progressive government because once the programs are started they grow like cancers until they kill the host.

keynes vs hayek round 2

VIDEO & LYRICS — “Fight of the Century” Hayek vs. Keynes Rap Round 2

see the video here

http://hayekcenter.org/?p=4804 

One of my favorite quotes by Hayek in this “fight” is from his last line:

“We need stable rules and real market prices so prosperity emerges and cuts short the crisis.”

My research on natural complex systems (like the economy) suggests that sustainable economic growth and prosperity “emerges” (naturally and in fact "organically") via the process of free and natural exchanging of goods and services offered by entrepreneurs and risk takers to willing clients.   Promises of prosperity by government fiat (including universal healthcare, social security, central bank business cycle management, public education) are all free lunch promises which beg the law of unintended consequences and thus cannot deliver on their promise.

I agree with Hayek: prosperity (let alone equality) can’t be injected into the world via enlightened government planning, no matter how well intended or expert or so called rational.  

This line of thinking reminds me of a quote from the amazon book review of Ron Paul's new book  "Liberty Defined"

Dr. Paul writes that to believe in liberty is not to believe in any particular social and economic outcome. It is to trust in the spontaneous order that emerges when the state does not intervene in human volition and human cooperation. It permits people to work out their problems for themselves, build lives for themselves, take risks and accept responsibility for the results, and make their own decisions. It is the seed of America.

(SEE BELOW FOR LYRICS TO THE FIGHT OF THE CENTURY)

VIDEO & LYRICS — “Fight of the Century” Hayek vs. Keynes Rap Round 2

By Greg Ransom, on April 28th, 2011

INTRO: John Maynard Keynes. F. A. Hayek Round Two. Round 2.0 Same economists. Same beliefs. New microphones. New Mustaches. Let’s go. Let’s go. Let’s go.

KEYNES:

Here we are. Peace out. Great Recession. Thanks to ME. As you see. We’re not in a depression. Recovery. Destiny. If you follow my lesson. More Keynes. Here I come. Line up for the procession.

HAYEK:

We brought out the shovels and we’re still in a ditch. And still digging. Don’t you think it’s time for a switch from that hair of the dog. Friend the party is over, the long run is here, it’s time to get sober.

KEYNES:

Are you kidding? My cure works perfectly fine. Have a look. The recession ended in ’09. I deserve credit. Things would have been worse. All the estimates prove it. I’ll go chapter and verse.

HAYEK:

Econometricians, they’re ever too pious. Are they doing real science or confirming their bias? Their Keynesian models are tidy and neat. But that top down approach is a fatal conceit.

KEYNES:

We could have done better if we’d only spent more. Too bad that only happens when there’s a world war. You can carp all you want about stats and regression. Do you deny that world war cut short the Depression?

HAYEK:

Wow. One data point and you’re jumping for joy. The last time I checked wars only destroy. There was no multiplier. Consumption just shank as we used scarce resources for every new tank. Pretty perverse to call that prosperity. Ration meat. Ration butter. A life of austerity. When that war spending ended, your friends cried disaster. Yet the economy thrived and grew faster.

KEYNES:

You too only see what you want to see. The spending on war clearly goosed GDP. Unemployment was over, almost down to zero. That’s why I’M the master. That’s why I’M the hero.

HAYEK:

Creating employment is a straight forward craft when the nation’s at war and there’s a draft. If every worker were staffed in the army and fleet we’d have full employment and nothing to eat.

HAYEK:

Jobs are a means, not the end in themselves. People work to live better, to put food on the shelves. Real growth means production of what people demand. That’s entrepreneurship, not your central plan.

KEYNES:

My solution is simple and easy to handle. It’s spending that matters. Why’s that such a scandal. Money sloshes through the pipes and the sluices. Revitalizing the economy’s juices. It’s just like an engine that’s stalled and gone dark. To bring it to life we need a quick spark. Spending the life blood that gets the flow going. Were it goes doesn’t matter. Just Get Spending Flowing.

HAYEK:

You see slack in some sectors as a general glut. But some sectors are health only some in a rut. So spending’s not free, that’s the heart of the matter. Too much is wasted as cronies get fatter.

The economy’s not a car. There’s no engine to stall. No experts can fix it. There’s no “it” at all. The economy is us. Put away your wrenches, the economy is organic.

KEYNES:

So what would YOU do to help those unemployed? This is the question you seem to avoid. When we’re in a mess, would you have us just wait, doing nothing until markets equilibrate?

HAYEK:

I don’t wanna do nothing, there’s plenty to do. The question I ponder is who plans for whom. Do I plan for myself or I leave it to you. I want plans by the many, not by the few. Let’s not repeat what created our troubles. I want real growth not a series of bubbles. Stop bailing out losers, let prices work. If we don’t try to steer them they won’t go berserk.

KEYNES:

Come on are you kidding? Don’t Wall Street gyrations challenge the world view of self regulation? Even you must admit that lesson we’ve learned is more oversight is needed or else we’ll get burned.

HAYEK:

Oversight? The government’s long been in bed with those Wall Street execs and the firms that they’ve bled. Capitalism is about profit and loss. You bail out the losers there is no end to the cost. The lesson I’ve learned is how little we know. The world is complex, not some circular flow. The economy is not a class you master in college, to think otherwise is the pretense of knowledge.

KEYNES:

You’ve been on your high horse and you are off to the the races. I look at the world on a case-by-case basis. When people are suffering I roll up my sleeves and do what I can to cure our disease. The future’s uncertain, our outlooks are frail. That’s why markets are so prone to fail. In a volatile world we need more discretion so state intervention can counter depression.

HAYEK:

People aren’t chess men you move on a board at your whim, their dreams and desires ignored. With political incentives, discretion’s a joke. Those dials are twisting – just mirrors and smoke. We need stable rules and real market prices so prosperity emerges and cuts short the crisis. Give us a chance so we can discover the most valuable ways to serve one another.

            

The difference between the Apollo mission and Health care

The article I've copied below by Jonah Goldberg articulates an idea I’ve had in my head but never seen fleshed out like this. 

Goldberg rightly derides Obama for using government "successes" (despite long odds) such as landing a man on the moon and tracking Osama bin Laden down as evidence to support the idea that government can accomplish so many other wonderful things in terms of improving the economy and society.    

What Obama doesn’t understand is that discrete “projects” like the Manhattan project or the Apollo mission or tracking OBL down and killing him are fundamentally different from projects that entail the continued management of sectors of the economy, which are dynamic complex systems like “green energy,” infrastructure, education, health care. 

Just because government managed a very complicated and incredibly sophisticated technology oriented project like landing a man on the moon doesn’t mean government can manage and engineer the outcomes of a complex system that must evolve and change over time.    

Landing a man of the moon requires incredibly sophisticated technology, but the project is NOT a complex system.  Complex systems can’t be pre-determined by human technology and intervention without the law of unintended consequences getting in the way.   Thus, getting OBL proves nothing about the government’s potential ability to successfully develop and manage and implement an efficient universal health care system.

Creating an efficient universal health care system via government mandate is something that is materially and fundamentally different from managing a complicated but discrete “project” that has a clear beginning and an end like landing a man on the moon or building an atomic bomb or getting OBL.

In fact, my research on complex systems suggests that it is IMPOSSIBLE for the government to successfully implement and manage a fiscally sustainable public monopoly over a large sector of economy such as health care. 

Thus, I agree with Goldberg that the Sputnik moment analogy Obama used in his state of the union address is completely bogus and erroneously applied as example of how the government can help win the future with enlighted government policies and "projects."  

 

Can Triumph Transfer? President Obama didn’t justify his policies by killing Osama bin Laden By Jonah Goldberg National Review Online Friday, May 13, 2011

After hearing the news that Osama bin Laden had been killed, who among us didn't joyfully shout, "Yes! This is a huge triumph for wind and solar energy!" Or "Wahoo! Now we can get immigration reform passed!" Personally, I would like to thank every member of SEAL Team 6 for taking such huge risks for high-speed rail and streamlining the bureaucratic regulations governing salmon fishing.

If you're confused, it's only because you haven't heard the White House explain the true significance of bin Laden's death.

According to an article in the Washington Post headlined "Bin Laden raid fits into Obama's 'big things' message," the White House believes taking out the world's most wanted terrorist is a boon for the entire Obama agenda.

The president says killing bin Laden proves that "as a nation there is nothing that we can't do" and reminds us "that America can do whatever we set our mind to."

Calling it one of the "most gutsiest calls of any president in recent memory," as Obama adviser John Brennan did, strains credulity almost as much as it rakes the ears of grammarians.

When asked what effect bin Laden's assassination will have on Obama's agenda, White House press secretary Jay Carney explained, "We obviously think that if there is a takeaway from it, it is the resolve that he has, the focus he brings to bear on long-term objectives, that he keeps pushing to get them done. When talking about immigration reform, he keeps pushing to get it done. And I think that that was reflected in his approach to dealing with Osama bin Laden."

Meanwhile, David Axelrod, Obama's former White House consigliere, now running the reelection effort, says that this was all a "reaffirmation of that American determination and American spirit — the ability to do the things that some people thought impossible. And that has value."

Quick question: Did anyone, anywhere, think that killing bin Laden was an "impossible" task?

Killing bin Laden was no small thing, and the heroics of the men (and dog) involved warrant unwavering praise. But it wasn't the moon landing.

But that's not what the White House wants you to believe. Indeed, for the last two years, the president has been beginning sentences, "If we can put a man on the moon . . . " to justify whatever he's talking about.

That is why Axelrod says, "If there's an enduring impact of [bin Laden's assassination], it will be a sense of what the president said in his State of the Union address."

Which brings us back to salmon regulations, immigration, high-speed rail, renewable energy, and other action items on Obama's "win the future" agenda laid out in January's address. Back then, Obama said we were in a "Sputnik moment," referring to the time when the Soviet Union's launch of a satellite inspired the Apollo space program and increased spending on scientific education and research.

So if I understand Axelrod correctly, killing bin Laden proves that "Yes We Can!" We can get all that "Sputnik moment" stuff done.

If all of this weren't so hilarious, it would be infuriating. Can you imagine if President Bush had said that the success of the surge in Iraq proved we really needed to privatize Social Security after all? What if John McCain had won in 2008 and ordered the killing of bin Laden? Would Senator Obama have rallied around his former opponent's agenda?

By all means, Obama deserves his fair share of credit for taking out bin Laden, though calling it one of the "most gutsiest calls of any president in recent memory," as Obama adviser John Brennan did, strains credulity almost as much as it rakes the ears of grammarians.

But the most bestest part, as Brennan might say, is the simple fact that the president doesn't know how we'll "win the future." In his Oval Office address on the Gulf oil spill, Obama explained that we don't know how we'll get where we need to go or what the destination will even look like.

But that's the genius of the Sputnik analogy. Since, as Obama explained, "we had no idea how we would beat (the Soviets) to the moon," it's okay that we don't know how to "win the future." And that in turn means that during the weakest recovery in half a century, we can blow billions on mythical green-energy jobs, push a government takeover of health care, encourage skyrocketing gas prices, impose crippling regulations and higher taxes, and make "investments" in white elephants and high-speed salmon.

Oh, it may not seem as if we're making progress on these fronts, but we are. You know how you can tell? Osama bin Laden is dead.

Jonah Goldberg is a visiting fellow at AEI.

(White House Photo/Pete Souza)

Dear John Letter #4. health care part 2.

I am not blaming Obama.  he is just taking a broken system and making it worse.

The bad policy that underpins the current health care crisis is a result of the accumulated BIPARTISAN public policy mistakes beginning in WWII when the Federal government put price controls on labor (as war time labor shortage and war spending put upward pressure on prices) and companies started to give “free” healthcare benefits to attract workers.  The federal government -- including many members of both major parties -- loved the idea of companies providing health insurance, so they incentivized this practice further by offering tax breaks to corporate provided health insurance. 

Why should companies offer health insurance???  It is a totally crazy system which worked when labor patterns were  much more stable in the 1950s and 1960s and 1970s. 

THE LAW OF UNINTENDED CONSEQUENCES STRIKES AGAIN

Price controls in WWII and the resulting (unintended) corporate response to offering free health insurance is the  policy screw up that is at bottom of current health care crisis because it has incentivized systematic over consumption of health care especially by the wealthy over 50 years.

over-consuption driven by subsidized corporate health insurance has meant a price inflation crisis in health care as demand outstrips supply. 

it really is that simple.  this isn't a market failure; it is government failure.

(corporations offer too much health insurance because  it is subsidized by the state: the result is a low deductible health insurance system that encourages over consumption of health services, which drives prices inexorably higher.  health insurance subsidies for top earners doesn't make sense, but it is politically difficult to eliminate them; remember obama tried to get rid of cadillac insurance but the unions blocked this!!)

WWII price controls are a great example of well intended public policy setting in train a series of negative unintended consequences that ends in total and utter disaster for society as a whole.  The current health care crisis can be traced to wage / price controls during WWII.

it is disingenuous to blame the private market for the healthcare crisis we face in this country.

What about Greed?

Is greed to blame for health care crisis?  In particular is the problem greedy insurance execs who don't care about patient health and only care about 'profits'?

humans are greedy.  that is a fact. 

businessmen are greedy and so are bureaucrats.   those are facts.   the system has to function well despite the underlying greed of human beings.  the only system that channels greed into productive ends is the market system because only the market faces competitive pressures.  if the government undermines competitive pressure or distorts the pressures -- as is the case with health care system -- then the market will never work. 

what makes you think bureaucrats won’t be just as greedy as insurance execs?  How do you hope to have a workable system that is turned over to greedy bureaucrats in BOTH PARTIES -- who have gamed the political system to avoid public accountability via redistricting???

I think only something like 5% of congressional seats are competitive in any election cycle.  THAT IS THE PROBLEM WE HAVE.

Greedy businessmen and evil free markets are easy whipping boys.  

John, what your world view entails is really a very simple trade off.  you want to trade a little bit of individual liberty for collective security provided by government.  as ben franklin says, anyone who makes that trade deserves neither liberty or security because to believe it is possible to have such a cake and eat it too outcome is utopian, wishful thinking.

Life isn’t fair and the government can't provide free lunches for society despite our most passionate and well intended hopes and utopian dreams. 

Dear John Letter #3. public vs private health care debate

Dear John

I’ll admit there are incredible inefficiencies in the current system.  Of course.  no denying it.  and you might be able to treat the inefficiencies you mention in your email with a single payer system.  Fine.   but you’ll get new inefficiencies when you implement your single payer system that will far outweigh the specific benefits from a single payer system you can identify right now.

It is also misleading to say the “private system” isn’t working.

We don’t have a private system. 

We have a  public / private system that is massively corrupted by public subsidies and further strained by a failing fully public system for old and underprivileged called medicare and Medicaid. 

John, you want to blame everything on a combination of demographics and greed.  You predict an “ageism” problem.  the problem isn’t ageism per se, it is a system that systematically shifts resources from the productive to the unproductive individuals that make up society.  That is a game the government plays. 

The GOVERNMENT creates such divisions as ageism by being in the game of choosing winners and losers.  Old people wouldn’t be in conflict with young if the government hadn’t designed the system to pit one group against the other.  

And old people would be a lot better off if we had a system where end payers paid health care costs directly and market pressures forced healthcare providers to keep prices low – FOR EVERYONE.

Obviously we would need an insurance component to the system, but the insurance would be for catastrophic needs only; not for day to day coverage and routine drug therapies.

The far right wing of GOP is responsible for end of life issues that keep old people alive when they are vegetables.    I think you’ve mentioned in past that something like 80% of healthcare costs are used up in last 3 months of people’s lives.  Let individuals decide when to pull the plug.  Crazy elements of religious right throw law suits at families who want to pull the plug.    Another example of GOP hypocrisy – if they want a free market for health care then let people make such decisions themselves.

Insurance companies are in the driver seat in current system not because insurance execs are greedy.    Insurance companies are in the driver seat because the system we have subsidizes medical insurance (via tax breaks for company sponsored insurance) and thus puts insurance companies in a position of maximum power in the system.    The government created the flawed system we have.    

The flawed system we have now isn’t a “market failure” or a failure of the private sector.    There is no such thing as a “private health care system” here in the US. 

I agree the current public/private system we have is screwed up, but it is not screwed up because of any inherent flaws in a private market for health care.  markets don’t “do” anything.  Markets are flawed in many ways, but government can’t fix these flaws without creating other worse flaws.  Any systemic flaws in the current system (i.e price inflation and fiscal unsustainability)is caused by government policy. 

You won’t fix the current system by getting rid of the private part of the current system.  You’ll fix the system if you get rid of the inefficiencies caused by public policy and crazy incentives injected in the system by public subsidies and Medicaid.

John, you want to give the government total control of the current system as if that will drive efficiency!!  Please explain exactly how a government monopoly will drive efficiency.  I know there are a laundry list of claimed efficiencies – like ending redundancies in payment system for all the diff insurance companies.  But, from a macro perspective, do you really believe that a public monopoly will be able to drive efficiencies over anything but the immediate short term??

Seriously john.  think about it.  do you really believe a public monopoly can sustain efficiency gains if it is not forced to be efficient based on competitive market pressures??   Forget it.  believing in public monopolies is a pie in the sky fantasy.

I know it sounds great to have one payer and you can envision all of these great “savings” but the problem with a one-payer system is the same as any utopian scheme.  It can’t work in the real world because any efficiency gains from one payer system will more than be offset by inefficiencies bred by an inherently corrupt government monopoly. 

Is that to say the market system will be perfect.  no of course not.  But first let’s disentangle the problems the market faces currently that are inherent flaws in the market and problems that are caused by public policy.  and then lets admit that the public sector isn’t going to be able to fix inherent market flaws with enlightened mandates and monopoly powers.  Anything the public sector does to fix one problem will trigger a train of unintended consequences that cause some other related set of problems … that will inevitably be blames on the so called market.

If one payer systems are so great, why don’t we have a one payer system for housing, finance, education, automobiles, etc, etc?  one payer systems ultimately prove unsustainable fiscally because there is no incentive in the system for continued efficiency gains in the system as a whole. 

All humans are greedy.   And businessmen are going to be greedy and maximize their rent seeking activities when they have a government facilitated “monopoly” like private insurance execs have;  John, what do you think will happen when we give the monopoly over to politicians???  All humans are greedy,  and bureaucrats will be just as corrupt as private insurance execs.  With a single payer system you will just exchange one set of corrupt execs for another set of corrupt bureaucrats.

The answer is competition.  Greed isn’t the problem.  the problem is government mandated monopolies that allow individuals to game the system without consequences.  If a company is filled with crooked employees, eventually it will go out of business.  If a government monopoly is filled with corrupt bureaucrats, which is will be eventually, because humans are greedy, then the system still stays in business and the tax payer gets screwed.    

That is what has happened with public education.  the unions (and Democratic party) hold the public education system hostage for their own selfish purposes.  tax payers get screwed.   The political elite and organized labor laugh all the way to the bank.

Dear John Letter #2: trickledown economics

PArt of my series of "Dear John" letters to my die-hard liberal friend...

Dear John,

I can agree with you that Republicans are often quite hypocritical for supporting so called “free markets.”   

Like I’ve said before, Republicans can’t talk credibly about free markets when they support a central bank dominated financial system that literally prints money to pay for a massive military industrial complex and military adventurism all over the world (and bails out politically connected financial institutions).

The Republicans do a disservice to markets when they promise that markets will work everything out or that there is such a thing as trickle down economics, when “we” have injected / infected the market system with easy money.  Markets can’t possibly work when they are distorted by unsound money.    The rich get richer and the poor get poorer in a system designed around a central bank.

When Republicans ask us to "trust" in the market, they set the market up to be the fall guy when things eventually come crashing down thanks to an inevitable easy money bubble fueled by the Federal Reserve, which is exactly what happened in 2006 - 2008.

Meantime, it is wrong for the GOP to use markets as a silver bullet solve-all for social problems.  Markets are inherently flawed.  We need to understand and articulate the inherent "micro" flaws in markets that paradoxically make them special and healthy and sustainable from a macro perspective.  Pollution, income inequality, and business cycles are just a few examples of what i would consider micro flaws / failures in markets that we can’t fix without undermining the underlying health of the larger economy.  

Try to get rid of income inequality or business cycles with enlightened public policy and I guarantee you will set the entire economy up for systemic failure.   There are no free lunches.  The macro sustainability of markets is in large part due to their inherent volatility and "unfairness."

all of this leads me to the Dems who are just as delusional -- if not more so -- when they promise government solutions to so called “market failures.”

The Dems never ever talk about trade offs.  They talk about market failures and win/win solutions provided by enlightened government policy interventions.  When anyone disagrees with a Democrat initiative, they’re assumed to be selfish or stupid.  Dems never talk about or acknowledge the unintended consequences or the unseen second order unpredictable results of their proposed win/win solutions.   

Very often in a complex system like a human economy, the result of an action is the exact opposite of the intended result!!!    for example, public schools are intended to help level the playing field in society, yet what they do is hold poor and middle class families hostage to a dysfunctional education system, which the rich (and politicians in Washington DC) can opt out of by sending their children to private schools, or by buying a house in a very wealthy neighborhood.

  

Trickle down economics is a straw-man.  Fine, let’s all agree that trickle down economics doesn’t work (especially when you have a system built on an easy money central bank).  But, what is the alternative?

Is there such a thing as trickle up economics?  the answer is NO.

Can you actually increase the welfare of a country or a household by providing direct cash aid?  What are the second order effects of that cash in the economy or to the household?  who gets the cash? What incentives or disincentives to work are created by the cash transfer?   Can you reduce income inequality with targeted public policy like highly graduated marginal tax rates?  Maybe … but, can you achieve your reduced income inequality goal without also causing harm to larger economy? the answer is no, you cannot have your cake and eat it too. 

You can’t raise marginal taxes on the rich without also setting in train a set of negative consequences that impairs the health of the overall economy.   the fastest way to income equality is total economic collapse like you see in North Korea or Soviet Union.  Dems would counter, well we don’t want perfect income equality, just more income equality or just less income inequality. 

Go ahead and try to reduce income inequality with high marginal tax rates.  The result will be lower growth and higher unemployment.   A good example of this is the US in the 1970s or modern France.    If you want to live with structural unemployment above 10%, then fine.  Lets at least admit the costs of using public policy to reduce income inequality.  While your at it, go ahead and raise the minimum wage. 

But be prepared to increase unemployment.  Economists can slice and dice the data to prove that raising the minimum wage doesn’t raise unemployment.  I don’t buy it. 

The fact is, any well intended public policy has a trade off component embedded in it.  sometimes the trade off is worth the cost.  I just don’t buy the win/win rhetoric of the Dems who promise free lunches and then when they don’t deliver, they blame the GOP for blocking them.

The problem with measuring the costs of public policy is that the second order effects are often hard to link to the initial policy.  So we implement one policy to fix one thing; the result is problems somewhere else, and we find ourselves in a never ending cycle of fixing problems caused by some previous policy measure.  Politicians point the finger at their political opponent or the market, and the finger rarely if ever gets pointed back at the politicians themselves.

You want universal health care?  then at least admit the tradeoffs.  There are always tradeoffs.  It is true that the US spends a greater share of GDP on health care for worse results than France or Canada.  But, that doesn’t mean if the government takes over in the US we can “save” money.  There are unique institutional reasons why we spend so much for health care in the US.  putting the government in charge will NOT magically reduce the percentage of GDP we spend on health care.    There are always tradeoffs.   

With Obamacare I can guarantee we will get some combination of low quality, doctor and service shortages, fiscal deficits and in the end we will get forced rationing.    The rich will always be able to opt out of the public system, and the poor will be stuck in a dysfunctional system.  Look at public education.  once the state takes over, the system is unionized and the unions (and politicians) game the system for their own selfish benefits.  That is reality.  The same will happen with obamacare. 

The text book solutions will never happen for government managed health care reform because politics intervene and neutralize the spending cuts while encouraging spending increases.  That’s exactly what we saw with Obamacare.

Like I’ve said, I can agree the GOP are often a bunch of power hungry hypocrites or well intended free market advocates who don’t understand how markets work or don’t want to admit that they can’t have their cake and eat it too (big defense spending and free markets). 

But the Dems are just as crazy when they claim their own version of promising the public we can all have our cake and eat it too; Dems promise to be able to fix this problem and that problem with public policy for a win/win for society.   I mean what fantasy land do we live in?  if the government could solve complex economic and social problems, then why are things so screwed up every where you look where government is in charge? 

That is not to say “markets” are perfect.  markets are inherently unfair and uneven and cyclical and unpredictable and will always result in structural income inequality.  There will be pollution and there will be oil spills and other problems. 

Markets aren’t perfect.  We need to get our arms around that simple fact.  The government can’t fix market failures because there is no such thing as market failure per se.  Markets have negative features just like any complex system.  

The earth system has what we call natural disasters.  These aren’t system failures.  An earthquake isn't an “earth system failure.”  Earthquakes are features of the dynamic complex system that play an essential role in the otherwise “healthy” functioning of the larger earth system.  Markets also have negative features that also play a crucial role in the otherwise healthy functioning of the larger economy and financial sector.  For example, human economies have cyclical booms and busts.   The busts weed out the weak firms and lay the foundation for the establishment of new ones. 

Let’s learn to adapt to the cycles rather than try to “fix” them with a central bank.

If you try to fix what you claim are market failures, you are trying to play God.  it is like trying to eliminate earthquakes or hurricanes.  Impossible. 

That is why all of this talk of fixing global warming is nonsense.  If global warming is a problem, the ultimate solution will be more market, not more top down directed human intervention, which will just trigger more cycles of negative unintended consequences.  More market means getting rid of central banks and governments encouraging easy money fueled growth at any cost, like we see all over the world.