Sensible Healthcare Reform

I've resisted posting on healthcare reform here for 2 reasons:

1. No one wants to read a 10,000 word rant complete with charts and analogies.
2. I can't find the time to write said 10,000 word rant.

So, I leave it to others with greater powers of brevity. Charles Krauthammer has two suggestions that should be tried before any radical restructuring of the current healthcare system. They will genuinely reduce costs and lessen the influence of government in our lives.

(1) Tort reform: As I wrote recently, our crazy system of casino malpractice suits results in massive and random settlements that raise everyone's insurance premiums and creates an epidemic of defensive medicine that does no medical good, yet costs a fortune.

I'm a lawyer, and even I agree with that. The inability of malpractice insurance companies to predict what crazy awards juries will give leads to astronomical premiums. In addition, it causes doctors to order unnecessary procedures "just to make sure:"

An authoritative Massachusetts Medical Society study found that five out of six doctors admitted they order tests, procedures and referrals -- amounting to about 25 percent of the total -- solely as protection from lawsuits. Defensive medicine, estimates the libertarian/conservative Pacific Research Institute, wastes more than $200 billion a year.

Krauthammer envisions something like the workers' compensation plan to handle malpractice incidents.

Abolish the entire medical-malpractice system. Create a new social pool from which people injured in medical errors or accidents can draw. The adjudication would be done by medical experts, not lay juries giving away lottery prizes at the behest of the liquid-tongued John Edwardses who pocket a third of the proceeds.

The pool would be funded by a relatively small tax on all health-insurance premiums. Socialize the risk; cut out the trial lawyers. Would that immunize doctors from carelessness or negligence? No. The penalty would be losing your medical license. There is no more serious deterrent than forfeiting a decade of intensive medical training and the livelihood that comes with it.

Second, uncouple health insurance from employment and from geography:

(2) Real health-insurance reform: Tax employer-provided health care benefits and return the money to the employee with a government check to buy his own medical insurance, just as he buys his own car or home insurance.

There is no logical reason to get health insurance through your employer. This entire system is an accident of World War II wage and price controls. It's economically senseless. It makes people stay in jobs they hate, decreasing labor mobility and therefore overall productivity. And it needlessly increases the anxiety of losing your job by raising the additional specter of going bankrupt through illness. . . . If we additionally eliminated the prohibition on buying personal health insurance across state lines, that would inject new and powerful competition that would lower costs for everyone.

Good common-sense things to try which will lower the cost of medical care and reduce both the need for, and the cost of, health insurance.

Random Readings

First Item:

Not believing in the greenhouse effect, I mean global warming, I mean "climate change" is not a kook-fringe position. Even some of the authors of the UN's climate reports don't believe it.

See this story.

By the way, have you noticed how the problem has morphed over the years?

I remember reading all about "The Greenhouse Effect" in elementary school and junior high. A specific, verifiable problem with a specific, verifiable mechanism driving it, which turned out to specifically not be happening.

Next, we heard about global warming. A specific, verifiable problem with a vague mechanism driving it, that turns out to have happened for about 30 years, but now . . . not so much.

Enter "climate change." This may be a winner. This is the real "change we can believe in" Both the problem and the mechanism are vague enough that no one can disprove them. Earth gets warmer = climate change! Earth gets colder = climate change! Every honest person, when asked "is the climate changing?" must answer "yes." Then the yelling about the horrors of capitalism, the evils of SUVs and the poor polar bears starts, and no one listens to the rest of the answer (from the article):

what do I believe about climate change? Firstly climate change is real, and has occurred on Earth for at least 4 billion years as long as an atmosphere and oceans have existed. Climate change occurs in cycles at various time scales, with the shorter time scales known as weather (by convention the distinction is 35 years). Trying to stop or control climate change is akin to stopping ocean tides. Secondly, I believe human activities affect climate, otherwise why would I bother with a mortgage. The climate inside my house is different to the climate that would exist if my house were gone.

Second Item:

Maryland has done us a service by demonstrating the effects of a huge tax increase on "the wealthy." The Wall street Journal has the story here.

Basically they raised the tax rate on those making over $1 million dollars a year. Here's what happened:

The Baltimore Sun predicted the rich would "grin and bear it." One year later, nobody's grinning. One-third of the millionaires have disappeared from Maryland tax rolls. In 2008 roughly 3,000 million-dollar income tax returns were filed by the end of April. This year there were 2,000, which the state comptroller's office concedes is a "substantial decline." On those missing returns, the government collects 6.25% of nothing. Instead of the state coffers gaining the extra $106 million the politicians predicted, millionaires paid $100 million less in taxes than they did last year -- even at higher rates.

Huh, who'd have thought? As the article explains "this is one reason that depending on the rich to finance government is so ill-advised: Progressive tax rates create mountains of cash during good times that vanish during recessions."

Common Sense . . . Almost

I was reading about the California Woman who just gave birth to octuplets. The poor lady had 6 kids already.

It seems like the media has no shortage of advice and criticism for her. Some stories imply that any sane person would have aborted several of the babies, others wonder about a possible breach of medical ethics by the doctor who implanted 8 embryos in the first place.

I'm glad she didn't abort them, I do wonder about the doctor though. Fox news tries to at least be helpful

"Eating, sleeping and bathing are the key areas to get scheduled," he said. "The same goes for mom and dad. Parents need to make sure they're whole or else they won't be valuable to their children."

Good, so far so good, just good common sense, but then common sense seems to go right out the window:

Sophy said the expense of raising 14 children will likely be prohibitive, citing studies that estimate it costs roughly $2.5 million to raise a child to adulthood. Using that math, raising 14 children would cost roughly $35 million.

"And that's basic stuff," he said. "That doesn't include swimming lessons and things like that. It's very costly and hopefully the planning that needs to be done was done upfront."

What the heck? 2.5 million dollars? For one child? Who won't even know how to swim? I don't even have to think to know that that is patently absurd.

If your family makes $100,000 a year and spends every penny on only one child for 20 years that's still only 2 million dollars. Throw in a $100,000 college education, and another $100,000 for law school, and you're still not there.

Common sense should tell you that many people who don't earn 2.5 million dollars in their lifetime successfully raise children to adulthood. For example, the median income in the U.S. is about $50,000. that median earner will need 50 years to make 2.5 million. Obviously it doesn't cost them 2.5 million to raise one child.

The reporter makes matters worse by simply regurgitating the number and then calculating that it will take 35 million dollars to raise the 14 children in the family.

Absolutely ridiculous.

When Are You Moving?

WARNING: this is a LONG, dry, economics rant post. Beware!

"When are you moving?"

I get asked this question every time I mention that we live in Ogden, but I work in Provo. The people asking the question have a point. A 156 mile round-trip commute isn't the most pleasant part of my day, and on snow days I often can't get either down or back.

The short answer is . . . who knows!

Here follows the long answer:

I do know why we haven't moved yet. Besides the wonderful generosity of family, for which we are very grateful, housing prices are not . . . shall we say . . . stable. MSNBC has an article today about the housing market. Apparently none of the measures being taken by the Federal Reserve have done anything to stem the tide of foreclosures or to increase the number of homeowners or the median price of a house. They have a spiffy graphic showing what housing prices have done since 1999:

Now, this raises two questions in my mind.

1. Why are homes worth more in the middle of every year and less at the beginning and end?
2. How does this track with median income changes over the same period?

I have no comment on the first question, and I only asked the second because I already knew the answer. That's why I'm writing this post.

So, as to question 2 - the amount a family can afford to pay for a house is related to their income. "Well. . . duh!" you say. Bear with me. It's more obvious when you think about housing prices in terms of years of income. In the UK, for example, the size of a mortgage you can qualify for equals 3 times your annual income (ignoring all other factors). Thus if you earn $50,000, then you can get a $150,000 mortgage. The ratio in the US is a bit more generous, but, same idea. With that in mind, let's look at another chart (thank you Wikipedia):

If you'll notice, median income peaked in 1999. Since then it has declined.

Everyone assumes the housing market was healthy in 1999. So, we'll start there. In 1999 median income was about $46,000, and the average home cost about $138,000 (just eyeballing the chart for the end of the year). That works out to . . . let's see . . . carry the 2 . . . oh, yeah, 3 times the median income. Those mortgage people were on to something. I'll call this 3:1 ratio a "healthy ratio."

Now let's look at 2005. Housing prices that year were $230,000 for most of the year, while median income had declined to $45,326. That comes out to over 5 times the median income. Not a healthy ratio.

When I look at the numbers that way, it's perfectly obvious why houses aren't selling. The latest income figures available are for 2007. They show that median income has risen slightly since 2005. It was about $50,000 in 2007. the housing slump was in full swing in 2007, so for that year the ratio declined from 4.6 times median income to 4 times median income.

What really gives me pause is this:

Looking at the income chart, median income starts to slide before every recession, and continues to decline till well after the recovery is underway. As every news outlet in the country recent told us, we are in a recession. Chances are good, therefore, that median income is falling, and has been for a while. (we don't get income figures till after the fact).

If this is one of the sharpest recessions ever, as we are reminded daily, chances are median income will fall steeply, and housing prices will continue to follow until well after the recovery is underway.

With that in mind, I'm going to make some predictions. Since they will be memorialized on the internet, we'll all see what my predictions are worth in a few years. (it's really win-win: if, as is most likely, I'm wrong, you'll all know to stop wasting your time reading my blog, and I'll know to keep my mouth shut on topics of which I am ignorant). These are also the reasons, in my mind, we aren't moving yet:

• I think housing prices will return to something much closer to the "healthy" 3:1 ratio they were at in 1999.
• Prices won't even begin to recover until unemployment starts to fall, and median income starts to increase at the earliest. (probably more like 6 months later).
• All the fancy things lenders did to make up for the increasing gap between income and housing prices are gone for good.
• I think the national median home price will easily fall below $150,000

I think the low prices will stay around a while because 1) All the speculators fueling shows like "Flip this House" lost their shirts (and good riddance), and 2) Lenders will be gun shy for a while, given the number of banks that went under from bad mortgages.

We'll see what happens, but I'm not optimistic for the next few years.


PS - Sorry for the abrupt ending, I tried to think of a good closing with a smooth transition and a hard-hitting conclusion, but I couldn't. The thoughts have stopped, hence so does the post.

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Who Knew Detroit Was This Bad? - Part II

As a former Michigan resident, I'll always have a soft spot in my heart for the state . . . well most of the state. I never did learn to like Detroit. I did learn to pity it, however. I have written previously about the problems facing Detroit. Here are some updated factoids, courtesy of MSNBC:

• The jobless rate has climbed past 21 percent
• There are 15 candidates for the Feb. 24 special mayoral election necessitated by the conviction of [mayor] Kwame Kilpatrick for trying to cover up an affair with a former top aide.
• The city's deficit is approaching $300 million, and he ordered all departments to cut their budgets by 10 percent.
• Several dozen schools have been closed in the past three years
• The FBI's latest statistics, for 2007, show Detroit with the highest violent crime rate of any major city. . . some offenders, notably those without homes of their own, were now expressing reluctance to leave jail when their sentences were done. (But, on the bright side, "property crime in some Detroit neighborhoods [has] stabilized or declined because targets of opportunity [are] fewer now that most remaining residents are poor and many of the homes have been abandoned and cannibalized.")
  
• About 44,000 of the 67,000 homes that have gone into foreclosure since 2005 remain empty, and it costs about $10,000 to demolish each vacant house. (do the math, and that means 440 million dollars just to tear down vacant housing created within the last three years).
• The residential real estate market is catastrophic, with the Detroit Board of Realtors now pegging the average price of a home in the city at $18,513. (According to the National Automobile Dealers Association, the average price of a new car sold in the United States is $28,400).

Keep in mind these stats were likely taken before the recent near-collapse of the American auto industry. If the "Big 3" go under, it may just be time to admit that the city has failed, move everyone out and just plow everything under. Over half the population has left in the last 50 years. I've never heard of a city being depopulated like that, not since the black plague in the Middle Ages.

One observer does manage to diagnose the root of the problem, however:

"Up until the '70s, you could come to the city without education, without speaking English, and get a job in the auto industry and instantly be in the middle class, economically speaking," said Mike Stewart, director of Wayne State's Walter P. Reuther Library and an expert on the auto industry. "A lot of folks in the city depended on these jobs for generations — they don't exist anymore," he said. "A lot of Detroiters are unprepared, educationally and technologically, to cope."

If a mind is a terrible thing to waste, then three generations of minds are . . .?

"Unprepared educationally" is a nice PC euphemism. What he meant was "illiterate." As I cited in my previous post on this subject Detroit has a 47% adult illiteracy rate.

The article points out that the surrounding areas aren't doing too bad. I can confirm that from personal experience. Prospects for improvement aren't good when all the need is concentrated in the area least able to deal with it.

Maybe we should declare a hurricane and disperse Detroit's population throughout the country, like we did with New Orleans. Many wouldn't return, but would that really be a bad thing? America can help that many people, Michigan alone can't, nor can the city of Detroit.

I wonder how much we'd need to pay Canada to take Detroit off our hands?

Apparently I Don't Understand Economics

We all know inflation is bad. Rising prices devalue our money and make it harder to buy things. Apparently the opposite is also bad. Deflation - falling prices - is also bad for the economy, at least according to economists quoted by MSNBC.

“A benign decline in prices amidst a sluggish but recovering economy would be unwelcome but tolerable,” Merrill Lynch economist David Rosenberg wrote in a note to clients this week.

Unwelcome to whom, Mr. Rosenberg? I know plenty of people who like to pay less for goods of all types. I've heard of weirdos who like to pay more, but they're much more rare.

“But the price slashing now under way as the consumer beats a hasty retreat could allow that corrosive deflationary spiral to take hold — something the Fed wants to avoid at all costs.”

The Fed wants to avoid falling prices "at all costs?" boy, with friends like that, who needs enemies?

As I said, I'm not an economist, but perhaps someone who is could answer this question for me:

If inflation is bad and deflation is bad, then what, precisely, do you expect prices to do?

Should a pound of cheese always have the same price? If so, then the USSR had this economics thing all figured out. They just printed the price right on the label. Year after year a jar of tomato sauce was 40 kopeks. Your parents paid 40 kopeks and, by darn, your children would pay 40 kopeks. Is that the answer?

The problem I have with this idea is that (as I have learned both in life, and in school), in a market, there needs to be a mechanism to balance supply and demand. That mechanism is price. If I want 40 dollars for a widget, and you don't think it is worth 40 dollars, guess what? No sale. Deflation has to occur to meet your demand.

At this point any "real economist" is probably either rolling on the floor laughing, pulling out his hair in frustration, or muttering incoherently about Econ 110 having no relationship to "real economics."

Well, maybe not - but the economists in the MSNBC story seem to have nothing but contempt for consumers. They give the distinct impression that they believe the average of consumers' judgments about the worth of goods (otherwise known as the 'market price') is wrong, and that they, the "elite" know what things are worth.

Pardon my skepticism, but are these the same "elite" who have guided our economy to it's current prosperous state? The ones who never saw the housing bubble coming? Who watched house prices rise 10% per year as wages rose 2% and saw nothing to worry about? Who thought sub-prime mortgages were a terrific idea? Or, a little farther back, thought stratospheric stock prices for unprofitable .com businesses were just the "new economy?" Or thought that Pres. Bush's tax cuts would unacceptably reduce govt. revenue? or that Reagan's tax cuts would do nothing the stimulate the economy? Or thought that Sweden was a model of a well-run economy?

Now who should be laughing?

I'll say it again. Economics is not a science. It is a pseudoscience. Any claims to truth or predictive ability that it makes are a fraud.

Economics is a descriptive art - like psychology. Also like psychology, it has no power to predict future behavior because every person in the system is an agent unto herself, and not an automaton. This is why no one saw this crisis coming. Economists admit that this is unprecedented and was almost completely unforeseen - and they are right - they just don't see it as a failure of their 'science.'

Economics is (at best) a social science, a descriptive study of human behavior. It is individual psychology mis-applied to huge groups of people, and it goes through fads just like any other field of study. It also has its quacks like any other field. Keep this in mind next time an economist claims to know something.

Obama's Real Economic Views

This is how Senator Obama talks about economic issues when he's not on his guard. This clip is from an interview he gave with Chicago Public Radio (a friendly audience) in 2001.

Scary stuff. Sounds like Marx's "From each according to his ability, to each according to his need."

Watch the clip here.

Read a more spirited condemnation on the National Review. An excerpt:

I would appeal to any American who claims to love the Constitution and to revere the Founding Fathers… I will not only appeal to you, I will beg you, as one American citizen to another, to consider this next statement with as much care as you can possibly bring to bear: “And uh, to that extent, as radical as I think people tried to characterize the Warren Court, it wasn’t that radical. It didn’t break free from the essential constraints that were placed by the Founding Fathers in the Constitution — at least as it’s been interpreted, and [the] Warren Court interpreted it in the same way, that generally the Constitution is a charter of negative liberties: [it] says what the states can’t do to you, says what the federal government can’t do to you, but it doesn’t say what the federal government or the state government must do on your behalf.

The entire purpose of the Constitution was to limit government. That limitation of powers is what has unlocked in America the vast human potential available in any population.

Barack Obama sees that limiting of government not as a lynchpin but rather as a fatal flaw. . .

There is no room for wiggle or misunderstanding here. This is not edited copy. There is nothing out of context; for the entire thing is context — the context of what Barack Obama believes. You and I do not have to guess at what he believes or try to interpret what he believes. He says what he believes. . .

If this does not frighten you — regardless of your political affiliation — then you deserve what this man will deliver with both houses of Congress, a filibuster-proof Senate, and, to quote Senator Obama again, “a righteous wind at our backs.”

We no longer have an independent, fair, investigative press. That is abundantly clear to everyone — even the press. It is just another of the facts that they refuse to report, because it does not suit them.

Remember this, America: The press did not break this story. A single citizen, on the Internet did.

There is a special hell for you “journalists” out there, a hell made specifically for you narcissists and elitists who think you have the right to determine which information is passed on to the electorate and which is not.

That hell — your own personal hell — is a fiery lake of irrelevance, blinding clouds of obscurity, and burning, everlasting scorn.

You’ve earned it.

Change You Can Believe In - Part I: Economics.

(Sorry, this is a little long).

I was glancing through Senator Obama's "Blueprint For Change" which outlines his policies and priorities, when I began to wonder how much spending has been promised. I decided to search to whole document and find out. All quotes are directly from Obama's Blueprint. Keep in mind that these are only the items that Obama has promised that include a specific dollar amount. I've done my best to weed out duplicate spending and to be generally fair. Let's start with a piece of Obama's plan I agree with:

Obama will reinstate pay-as-you-go (PAYGO) budget rules, so that new spending or tax cuts are paid for by spending cuts or new revenue (ie tax increases) elsewhere.

Well, it's about time! Keep this in mind. I'll come back to it later. Let's take a look at how much spending Senator Obama will need to offset.

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First direct spending promises:

reduce a typical family’s premiums by as much as $2,500 per year (through government-funded health care)

Cost: 100 billion dollars/year (400 billion for his first term)

(Guessing conservatively, at an average of $1000 times 100 million families; this jives with Obama's own estimated cost for his health insurance plan).

$10 billion a year over the next five years to move the U.S. health care system to broad adoption of standards-based electronic health information systems.

Cost: 10 billion/year (50 billion total)

Obama will provide a $1.5 billion fund to assist states with start-up costs (of FMLA reform)

Total cost: 1.5 billion total

Create Automatic Workplace Pensions -employers who do not currently offer a retirement plan, will be required to enroll their employees in a direct-deposit IRA account that is compatible to existing direct-deposit payroll systems...His plan will match 50 percent of the first $1,000 of savings for families that earn less than $75,000.

This one is hard to price. Considering the number of families earning less than 75,000 (a large majority) the cost could be enormous. Besides, I thought social security was the answer:

“We … have an obligation to protect Social Security and ensure that it’s a safety net the American people can count on today, tomorrow and forever.
–Barack Obama, Speech in Des Moines, IA, October 27, 2007

So, we won't count that one.

Obama will invest $150 billion over ten years to deploy clean technologies

Cost: 15 billion/year (150 billion total)

Obama will create a Clean Technologies Venture Capital Fund to fill a critical gap in U.S. technology development. Obama will invest $10 billion per year into this fund for five years

Cost: 10 billion/year (50 billion total)

Obama will invest $1 billion over five years in transitional jobs and career pathway programs

Cost: .2 billion/year (1 billion total)

He will provide at least $2 billion to expand services to Iraqi refugees

cost: 2 billion total

he will double our foreign assistance to $50 billion to achieve that goal (cutting world poverty)

Total cost: 25 billion/year

Total Spending: 679.5 billion dollars.

Total ongoing yearly spending: 160.2 billion dollars.

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Now let's look at new tax cuts:

Obama will cut income taxes by $1,000 for working families to offset the payroll tax they pay

Cost: 20 billion/year (if 20% of families are "working").

Obama will create a new “Making Work Pay” tax credit of up to $500 per person, or $1,000 per working family.

Cost: 20 billion/year (see above assumptions)

Obama will create a 10 percent universal mortgage credit to provide tax relief to homeowners who do not itemize. This credit will provide an average of $500 to 10 million homeowners

Cost: 5 billion dollars

an immediate tax cut averaging $1,400 to 7 million seniors

Cost: 9.8 billion dollars

Obama will create a new  American Opportunity Tax Credit...This $4,000 tax credit will be fully refundable...

Also very hard to value. Potentially huge. We'll ignore this one too.

Total tax cuts per year: 54.8 billion dollars.

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So, by Obama's own reckoning, every year (for at least 5 years)the federal government will need to come up with a minimum of 215 billion dollars additional tax revenue (54.8 billion + 160.2) if Obama is really going to offset these expenses. Of course this also assumes zero spending growth for every other government agency and program: Medicare, Medicaid, Social Security, Military spending, interest on the debt, Education, etc . . . . or Obama could cut spending . . . (yeah, that's going to happen).

Total federal tax revenue for 2007 was 2568 billion dollars. The needed tax increase will, therefore, be 8.4% on average for every taxpaying entity in America. The reality will be much greater for some taxpayers and corporations than others given the fact that nearly 50% of taxpayers pay no income taxes, and Obama's stated preference for raising taxes only on corporations and "the rich."

This minimum increase excludes onetime spending and several ongoing programs I listed above. It also excludes many other programs, funds, grants, commissions and panels which are promised but not given a dollar value.

It also does not include the "cap and trade" carbon reduction program which amounts to an enormous tax on energy production. It also excludes the "windfall profits tax" on the oil companies. It does not include the cost to business of increasing the minimum wage or of compliance with any of the additional regulations Obama proposes.

Finally, this assumes that nothing goes over-budget - this is the government we're talking about here.

This is the minimum cost of "change you can believe in."

Current Oil and Gas Prices are Self-inflicted Wounds

For several reasons, I always enjoy finding articles that summarize everything I've been thinking on a current issue. First, it confirms what I've always thought - "I'm a smart guy." Second, it saves me the trouble of composing long blog posts - I can just cut, paste and link. Much easier.

so I'm glad I found this post on the real political and historical reasons for the current "energy crisis."

Short version: Congressional dismay about high gas prices is like me blindfolding myself and then complaining when I bump into things a lot.

Long Version:

Americans feeling the pinch at the pump should recognize that the wealthiest nation on the planet has nothing but itself to blame for the third in a series of energy crises that began when Richard Nixon was still in office.

Having largely ignored the previous two shots across the bow — the first coming in 1973 when OPEC decided to ban sales of oil to nations that supported Israel in the Yom Kippur War, and the second in 1979 after the Islamic Revolution in Iran — the U.S. seems determined to repeat the mistakes of the past.

What should make Americans on both sides of the aisle even more ashamed is that before the first energy crisis, the United States produced 11.428 million barrels of oil per day. This represented 66 percent of the 17.308 million barrels we consumed that year.

Compare that to 2007, when America produced 8.481 million barrels per day, or only 41 percent of the 20.7 million barrels consumed. Such is the result of the so-called energy policies of seven White Houses and 17 Congresses controlled by both Democrats and Republicans.

Yet, today’s politicians — mostly on the left side of the aisle, of course — have the gall to place all the blame for rising energy prices on increased demand from expanding economies like China and India.

At least those countries are participating in exploration efforts to expand their own supplies. China’s oil production has almost doubled since 1980, while India’s has grown by an astounding 375 percent. At the same time, U.S. production has declined by 22 percent. . .

Closer to home, our neighbors also ramped up oil production. To the south, Mexico has seen its crude output jump 64 percent since 1980, while Canada’s increased 85 percent.

Did I mention that our production declined by 22 percent in the same period?

Putting this in its proper perspective, if America had responded to the second energy crisis by increasing oil production only at the average rate of our North American neighbors, we’d currently be supplying ourselves with 18.86 million barrels of crude per day, or 91 percent of our usage.

It's not as if we don't have the oil available. According to an April 2006 study done for the Library of Congress:

Oil shale is prevalent in the western states of Colorado, Utah, and Wyoming. The resource potential of these shales is estimated to be the equivalent of 1.8 trillion barrels of oil in place. . . . In comparison, Saudi Arabia reportedly holds proved reserves of 267 billion barrels.

That doesn't include ANWR, and it doesn't include offshore drilling.

The real problem, I believe, is that liberals, and environmentalists in particular, want oil to be expensive. Read the words of Sen. Obama when ask his opinion of high oil prices:

I think that I would have preferred a gradual adjustment. The fact that this is such a shock to American pocketbooks is not a good thing. But if we take some steps right now to help people make the adjustment, first of all by putting more money in their pockets, but also by encouraging the market to adapt to these new circumstances more rapidly, particularly U.S. automakers.

I think most people fail to see the need for an adjustment at all. the article points out that Democrats don't have this attitude about other scarce "resources."

Why has one political party for nearly four decades viewed energy crises through the narrow prism of learning to adjust to higher prices and declining resources, as opposed to aggressively finding and producing more of what the country and the economy needs?

Such questions seem particularly relevant given how this same party views hunger in our nation and throughout the world. The answer isn’t for those that have less to make an adjustment and adapt to their impoverished condition. 'Adjust to having less' is certainly not the Left’s prescription for Americans lacking health insurance.

Democrats want government to increase the supply of food and medical care to those deemed financially incapable of providing for themselves.

Why doesn’t the same hold true for energy?

Climate and the Precautionary Principle

We went to a memorial day barbeque today with several families from the ward, and I got into a debate (friendly, of course) with a brother about the greenhouse effect, global warming, climate change (whatever it's called now).

Anyway, we each had points and counterpoints. I'm a lawyer and he's a physicist, so it's not like either of us really knows what we're talking about. But I noticed that whenever I'd make a point, the response would be something like "yeah, we don't really know, but we shouldn't risk it."

I've encountered this attitude recently as I wrote my final law school paper. It is basically "better safe than sorry." The formal name for this philosophy is the Precautionary Principle. It's widely used in environmental circles as a justification to prohibit, regulate or tax any activity that could conceivably impact the environment.

the Precautionary Principle is insidious for at least two reasons.

• First, it reverses the burden of proof - forcing one side to prove a negative. Instead of the environmental advocate gathering evidence of actual harm and using that evidence to advocate halting the damaging activity, all the activist has to do is come up with a scenario that will potentially harm the environment, and invoke the Precautionary Principle. The activist doesn't have to prove anything, the other side has to prove that their activities will be harmless. This is nearly impossible. I can't prove that driving to taco bell to get lunch will be harmless. This being the case, the precautionary principle says I should not do it.
• Second, it is used selectively. Environmentalists use it to force industry to prove they will cause no harm, but activists don't take into account the harm caused by their own actions. DDT was banned because it may have harmed some birds, but this ban has allowed millions of people to die from mosquito-bourne malaria over the last 3 decades. One would think that if an action had the potential of killing millions, the precautionary principle would dictate that it not be taken. not so. Only environmental harm is fair game. (and humans are not part of the environment).

Just something to keep in mind next time you hear predictions of possible environmental catastrophe.

The "New Homeless"

CNN ran a very misleadingly-titled article today: Mom Forced to Live in Car With Dogs. What an outrageous example of elder abuse, right?... No. Kids out of control and trashed the house?... No. A fire or flood?... No.

This poor lady is a member of the "middle class homeless." At the beginning of the article I felt bad for her, but as I read, I gradually found it harder and harder to really sympathize. Let's just say she's not your stereotypical homeless person.

Barbara Harvey climbs into the back of her small Honda sport utility vehicle and snuggles with her two golden retrievers, her head nestled on a pillow propped against the driver's seat. Californian Barbara Harvey says she is forced to sleep in her car with her dogs after losing her job earlier this year.

Poor lady. But wait, she owns a Honda SUV? Oh, then I saw the dateline: "Santa Barbara, CA," so it's all relative. (a late-model Honda CRV in Santa Barbara is like a 78 Chevy Nova anywhere else, right?). She also owns (and feeds) two large dogs. Just the bare necessities for her. I don't know about you, but I don't want to live in a country where the homeless can't even afford to support two large dogs when forced to live in their SUV.

A former loan processor, the 67-year-old mother of three grown children said she never thought she'd spend her golden years sleeping in her car in a parking lot. . .

Harvey was forced into homelessness this year after being laid off. She said that three-quarters of her income went to paying rent in Santa Barbara, where the median house. . . costs more than $1 million. She lost her condo two months ago and had little savings as backup.

Gee, I wonder why she wasn't able to save anything. Must be George Bush's fault. There might be a place or two where it would be cheaper to live. Especially when you have transportation and no steady job tying you down! That just makes me feel like shouting - MOVE TO A NORMAL TOWN!! The rich can barely afford to live in Santa Barbara.

And her children must be real deadbeats, not helping their mom, huh?

Her 19-year-old daughter moved in with friends to avoid being homeless. Her other children live overseas, and she didn't want to tell them about her living status.

Even if her children offered to help, she said, she wouldn't accept it.

She wouldn't accept help from her own children? But she'll complain to CNN! Are we supposed to just ignore this and feel sorry for her anyway? At least she's an optimist when her daughter calls. (on her cell phone?)

"My daughter especially is very unhappy. Sometimes she'll cry, and she'll call and say, 'Mom, I just can't stand it that you are living in a car,' " Harvey said. "I'll say, 'You know what? This is OK for right now, because I'm safe, I'm healthy, the dogs are doing OK, and I have a job, and things will get better."

Well, as long as the dogs are OK! Things WON'T get better, not in Santa Barbara they won't. Get in your car and leave, find an affordable apartment in an affordable town, get rid of the dogs, and the cell phone and, for crying out loud, talk to your children!

The article quotes an economist blaming the California housing crisis and the dearth of affordable housing in Santa Barbara. blah, blah, blah. The real issue here is stubborn pride and a fundamental disconnect from the realities of life. Unfortunate, yes, but not unforeseeable, and certainly not irreparable.

Surprised Economists

I've been struck repeatedly over the last few years by how many stories about the economy contain phrases along the lines of "economists were surprised by..."

It seems like they are surprised by any economic news that comes out. Something is always more or less than predictions, and not by just a little, but by orders of magnitude. For example, economists were surprised again today by job numbers and factory orders. (Incidentally, I wish I'd got to this earlier, the wording earlier today was different, the "news people" softened their description of how surprising the numbers were).

a government report showed the nation’s employers cut far fewer jobs than expected last month, stirring optimism about the buoyancy of the economy. . .

The Labor Department’s report that employers cut 20,000 jobs in April was a relief to Wall Street, which had been expecting payrolls to fall by 75,000 jobs. . .

The Commerce Department said U.S. manufacturers saw orders increase 1.4 percent in March. Economists expected a 0.2 percent increase after declines in January and February.

They were expecting 75000 fewer jobs. They were only off by 275% This one isn't sooooo bad, after all there are a lot of jobs in the nation, and the usual gains are 200-300 thousand. Maybe they had a bad day. But, 0.2 versus 1.4? That's off by 600% and the viable range on those numbers is never more than a few percentage points.

I can only think of 3 explanations for the constant stream of these stories:

• First, the stupid economists are the only ones giving interviews.
• Second, these are the smart ones, and even they don't know what they are talking about.
• Third, and this is my theory: You cannot reduce the countless individual choices of a quarter billion people to a formula with any degree of accuracy.

This may disappoint some of my economist friends, but economics is NOT a hard science, it is a descriptive science. It is valuable when looking retrospectively, but absolutely useless as a tool for precise prediction.

Economics is not the only 'science' with this problem. Political science, sociology, psychology, and even, to some extent biology have the same shortcoming. This is because they are trying to predict the actions of beings with souls and free will. In such cases, the best you can do is averages and general trends.

That doesn't mean they are not worthwhile tools, but their practitioners need to recognize the limits of their science and not advocate more detailed policies than the science can support.

You Know You're In France When . . .

. . . offering your customers free shipping is ruled illegal.

No, that's not a joke. An excerpt from the article:

The Tribunal de Grande Instance (a French appeals court) in Versailles ruled back in December that Amazon was violating the country's 1981 Lang law with its free shipping offer. That law forbids booksellers from offering discounts of more than 5 percent off the list price, and Amazon was found to be exceeding that discount when the free shipping was factored in. . . Now it's choosing to pay €1,000 a day rather than follow the court's order. . . Amazon can do so for 30 days (€30,000), but after that time the court will review the fine. They could raise it, or they could lower it, but given that Amazon has chosen to flip the justices the bird, guess which outcome is more likely? At some point, if Amazon doesn't change its ways, the fine will probably be jacked up so high that the company has no choice but to comply.

Vive la France! Vive la socialisme! and Vive la expensive books!

From the files of Big Brother

The nanny state continues it's malignant growth. A Tyranny Update from Walter Williams via Townhall.com:

The California Energy Commission has recently proposed amendments to its standards for energy efficiency... These standards include a requirement that any new or modified heating or air conditioning system must include a programmable communicating thermostat (PCT) whose settings can be remotely controlled by government authorities. A thermostat czar, sitting in Sacramento, would be empowered to remotely reduce the heating or cooling of your house during what he deems as an "emergency event."... the thermostat must be configured in a way that doesn't allow the customer to override the czar's decision.

Get ready for mandated 68 degrees in the winter and 78 degrees in the summer. Babies, illness or personal preferences be damned! Will Californians really put up with this? I hope not, because California lunacy has the tendency to spread. Forget the Mexican border fence, let's start work on the California border fence. We'll make it like the Berlin Wall. We'll welcome all escapees, but won't let them return.

Someone has to save them...

Why I Quit the Social Sciences

MSNBC has an encouraging headline today:

Bucking the trend in many other wealthy industrialized nations, the United States seems to be experiencing a baby boomlet, reporting the largest number of children born in 45 years.

The nearly 4.3 million births in 2006 were mostly due to a bigger population, especially a growing number of Hispanics. That group accounted for nearly one-quarter of all U.S. births. But non-Hispanic white women and other racial and ethnic groups were having more babies, too....

The same report also showed births becoming more common in nearly every age and racial or ethnic group. Birth rates increased for women in their 20s, 30s and early 40s, not just teens. They rose for whites, blacks, Hispanics, American Indians and Alaska Natives.

If I were to guess at the reasons, I would say things like: "people are confident in the future" or "people are well-to-do enough that they can support a larger family" or simply "Americans love family and value children."

According to "the experts," however, I would be mistaken. The actual reasons, of course, are:

a decline in contraceptive use, a drop in access to abortion, poor education and poverty.

Huh??? That the stupidest thing I've read in weeks. I must have missed the Supreme Court's over-ruling of Roe v. Wade, and the onset of the current Depression with its widespread poverty. I'm sorry, but poor education does NOT explain an increase in fertility among women in their 30s and 40s.

This is a prime example of social science failing to see the trees for the forest (to turn the metaphor around). They are taking a generalization and applying it to a specific case (the U.S.) which may not fit the generalization. All this "expert" did was think of the generalizations commonly used to explain the decline in fertility which usually accompanies economic development, then... and this is a basic logical fallacy... assumed that since fertility increased, the level of development as measured by the above factors must have declined.

Anyone who has had any logic training at all knows that:

If A (development), then B (lower fertility)
Not B,
ergo not A

is not logically sound.

That is what I hated about the social sciences. They all seem to believe that because the group acts a certain way on average, individuals within the group act the same way. No allowance is made for individual choice or action. Everything is averages, means and standard deviations.

Social Science cannot explain individual cases that deviate from the norm. It cannot account for Ghandi or Hitler, Mother Teresa or Stalin, the Pioneers or the Crusades, Jim Jones or Jesus Christ, and it cannot, apparently, explain why Americans love and value children more than Europeans do.

The Top 1%

We've heard a lot this election cycle about "the top 1%" of income earners. Usually in a context like this:

Mr./Ms. Candidate (D): ". . . and I'll give every American healthcare by making sure the top 1% pay their fair share!"
Audience: (applause)
Newscaster: "A bold new proposal, from a bold new . . . (blah, blah, blah)"

But who are the mysterious "top 1%?" and what is "their fair share" anyway?

One gets the impression that they are watching CNN, poolside at the summer home, champagne in hand, laughing at the audacity of the politicians and vowing: "I will never, NEVER! pay my fair share!"

Or perhaps they are meeting old friends at the upscale "Club Un Percenteaux" in Manhattan (a very exclusive club -- it only admits 1% of those who apply) and plotting to buy off Congress to keep their low tax rates.

Thomas Sowell has a great article on who they are on National Review Online. Turns out the club isn't so exclusive after all:

Who are those top one percent? For those who would like to join them, the question is: How can you do that?

The second question is easy to answer. Virtually anyone who owns a home in San Francisco, no matter how modest that person’s income may be, can join the top one percent instantly just by selling their house.

But that’s only good for one year, you may say. What if they don’t have another house to sell next year?

Well, they won’t be in the top one percent again next year, will they? But that’s not unusual.

Americans in the top one percent, like Americans in most income brackets, are not there permanently, despite being talked about and written about as if they are an enduring “class” — especially by those who have overdosed on the magic formula of “race, class and gender,” which has replaced thought in many intellectual circles.

At the highest income levels, people are especially likely to be transient at that level. Recent data from the Internal Revenue Service show that more than half the people who were in the top one percent in 1996 were no longer there in 2005. . .

These are not permanent classes but mostly people at current income levels reached by spikes in income that don’t last.

More ways to get in the club:

These income spikes can occur for all sorts of reasons. In addition to selling homes in inflated housing markets like San Francisco, people can get sudden increases in income from inheritances, or from a gamble that pays off, whether in the stock market, the real estate market, or Las Vegas. . . corporate CEOs, those who cash in stock options that they have accumulated over the years get a big spike in income the year that they cash them in. . . Some of these incomes are almost as large as those of big-time entertainers — who are never accused of “greed,” by the way.

I might add own a small business to the list. The tax code makes it easy to live very well off your business, and report almost no income (it's been reinvested in the business).

It's not the same people who are rich at any given time. That's the beauty of the American economy. Anyone really can get rich (at least for a while), and no one has to stay poor. The free flow of goods and labor, the flexibility of business to hire (and fire) as necessary, and nearly universal access to education means that:

Most Americans in the top fifth, the bottom fifth, or any of the fifths in between, do not stay there for a whole decade, much less for life. And most certainly do not remain permanently in the top one percent or the top one-hundredth of one percent.

As to what "their fair share" may be, who knows. One might think it would be roughly the same as their percentage of the total income in the country. I do know that (according to the IRS) in 2004 they paid

• 36.89% of all income taxes, and made
  
• 19% of the total income.

Meanwhile, the bottom 50% paid

• 3.3% of all income taxes, and made
• 13.4% of the total income

There's at least an argument that they pay their share already.

The Democrats' View of Taxes

In speaking of a tax cut, Gene Sperling, Hillary Clinton's chief economic advisor, said the following at a recent National Press Club panel discussion:

The question is, should we be giving an extra $120 billion to people in the top 1 percent?

Democrats see tax cuts as the government giving people money. This is insane! Welfare is giving people money, tax cut are no such thing. One gets the impression from the Democrats that wealthy Americans are a natural resource, to be pumped for as much cash as we need. Jonah Goldberg explains very eloquently in National Review:

You can see where Democrats get this idea, after all. The top 1 percent of wage earners already provide nearly 40 percent of federal income tax revenues. The bottom 50 percent of taxpayers contribute only about 3 percent.

This is dangerous to our form of government.

According to Democrats, it's greedy to want to keep your own money, but it's "justice" to demand someone else's.

Taxes are a necessary evil. But their silver lining is that they foster a sense of accountability and reciprocity between the taxpayer and the tax collector. Indeed, democracy is usually born from this relationship. Widening prosperity brings a rising middle class, which in turn demands the rule of law, incorrupt bureaucracies and political representation in exchange for its hard-earned money.

As the tax burden shifts to the rich, and as fewer people overall pay taxes:

the people are less inclined to see government as their expensive servant and more as their goody-dispensing master.

Democrats keep telling the bottom 95 percent of taxpayers that America's problems would be solved if only the rich people would pay "their fair share" of income taxes. Not only is this patently untrue and a siren song toward a welfare state, it amounts to covetousness as fiscal policy.

. . .it's unhealthy for a democracy when the majority of citizens don't see government as a service they're reluctantly paying for but as an extortionist that cuts them in for a share of the loot.

Beware any candidate who equates tax cuts with government spending. They may cut "spending" so much that we may end up with no money at all.