Fixing Healthcare

Think health care is too expensive? The problem may be that it’s just too good. Solution? Reduce the quality of health care. Senator Obama has a plan!

Where’s Ross Perot?

Russ Roberts has a glum article which describes the foolishness of the government’s “bailout” activity. While I agree with him about the particulars, I am far more upbeat. Why?

• Living beyond our means has been a problem for decades and a major contributor to the turmoil. But people are already adjusting by spending less and saving more. This may prove painful in the near term, but it is the correct action for the long term. No pain, no gain.
• The bailouts are a waste of money, but in the end, mismanaged companies will fail. They will be replaced by better companies. We’re delaying that result, but we cannot prevent it. This will be good for the economy.
• Although we’re piling up a huge deficit, it is recognized as a problem and is correctable with spending restraints. This will force the next administration to make spending reduction a higher priority and grand new spending schemes a lower priority. As it has before, deficit reduction will be the big political issue of the future. A relatively smaller government will be a good thing.

It’s unrealistic to expect politicians to “do nothing”. Instead, we should give them something better to do. I think “deficit reduction” will be the ticket. Where’s Ross Perot when you need him?

Heroes and Villains

I found an interesting perspective on the Obamaramas we’ve been seeing. I suspect he’s right. Something inside us is always looking for heroes and villains… and we’re always disappointed.

Going Europe

Given current trends, I think this article is generally right: we will soon be mimicking a European welfare state. But I don’t see it as irreversible. As Dr. Baden points out:

If one is blessed with responsible parents, intelligence, favorable genetics, health, presentable appearance, and the ability to defer gratification, she is exceeding likely to prosper

Although that leaves a lot of people out, it also includes huge numbers of Americans – and they won’t like the consequences of our nation’s “going Europe”. Neither will a lot of other people. We forget that most Americans’ ancestors abandoned what they knew to take their chances in a new world. Our ancestors were mostly plucky risk takers and prickly about authority. Maybe we’ve lost some of the spark, but I suspect the backlash against going Europe will be significant. People mostly haven’t thought it through – yet.

Learning Life’s Lessons

Roger Kimball writes nice prose. In considering the Obama campaign, he wonders why we haven’t learned from the past. I think the answer is simple: most people are unaware of the past and are willing to believe any outlandish political promise if its made with sufficient uplifting eloquence. Each generation must learn anew. And life’s lessons are expensive and difficult. That should tell you something about the next few years.

Market Forecast

I seldom make market forecasts, but I’m starting to get very optimistic about 2009.

The timing may seem odd. After all, many financial institutions have imploded (and more will come), unemployment is growing, the economy is not, iconic companies like GM and Chrysler are on the ropes, and we have a Congress and probable President which seem determined to make thing worse. So why am I growing optimistic?

I suggest you look at the dollar and read The Tallest Pygmy. Just as people want to keep their cash in the strongest currency, they want their equity investments in the strongest economy. Our markets may look bad, but others look worse. An influx of foreign buyers into US equities, once all the sellers are done selling, will drive stock prices up. So pay attention to US stocks, particularly those of the largest companies that are well known overseas. 2009 could well be a banner year.

Austrians in the Clouds

I check the Zoho blogs to stay abreast of what is happening in the world of “cloud computing”. Imagine my surprise when I found this excellent post on Krugman versus Austrian economics.

Do I agree? Pretty much.

Lessons Learned?

While we plunge into global recession, Congress and the press are playing “who shot John” and Mr. Greenspan seems to be the current whipping boy. He got it wrong, and people are angry. But would it be impolite to mention that all of the world’s governments got it wrong? Surely Mr. G didn’t have that much influence!

In writing about the financial mess, I keep trying to move to higher levels of abstraction. Even if I knew exactly what should have been done with CDOs, who would listen? And what could they do about it now?

No, if lessons are to be learned, they must be learned at a higher level. And, at the highest level…

Central banks failed. Government regulators failed. Policy makers failed. The reasons are simple:

• Central planners cannot have enough information to do their jobs very well
• Central planners respond to a perverse set of incentives

Everything else is detail. Yes, it’s nice to know about the Austrian Business Cycle and Keyne’s musings on uncertainty, but you can’t do much about either one. The lesson going forward is this: calamity is inevitable with centralized planning and control. Resolving the mess with even more centralized planning and control is doubtful unless we just get lucky.

Uncertainty

In the “clouds with silver linings” department, the current financial crisis has caused some wonderfully lucid writing about the economics behind the mess. It seems that every day I find an article better than I’ve seen before. Now I have a new candidate for the best: The Artificial Boom @ The Everyday Economist.

Some economists think Hayek offers the most insight; others think that Keynes is the man. These two schools tend to hold the other in disdain. The Everyday Economist draws on both Hayek and Keynes to describe what has happened and what can be done. The bottom line?

Until we begin to take uncertainty seriously and understand the limitations of price level stabilization, no amount of regulation or intervention will prevent such a crisis in the future.

I was not familiar with Keynes focus on uncertainty, but it sure makes sense to me. Read the article.

Financial Crisis Summary

This is the best summary I’ve found to date. I love this quote:

Just because we think something is morally desirable … does not mean that it is economically feasible.

Those are words to live – and govern – by.