He who permits himself to tell a lie once, finds it much easier to do it a second and third time, till at length it becomes habitual; he tells lies without attending to it, and truths without the world’s believing him. This falsehood of the tongue leads to that of the heart, and in time depraves all its good dispositions. — Thomas Jefferson, 1785.
Last year during the protests by the Tea Party, some on the Left smugly mocked the protesters who wanted the government to keep their hands off their social security. At face value, this appeared to be hypocrisy or stupidity. On one hand, one of the key themes of the Tea Party is limited government. On the other hand, some Tea Party followers wanted to make sure that the government program they benefited from was unaffected by any new government action.
However, the confusion of some of these protesters can be traced to the fact that they have bought into the governments myth of Social Security. It is not portrayed as an income transfer program paid for by taxes, but rather as a social insurance program into which people invest, much like any retirement program. Many social security recipients are convinced they are just getting out what they put in. Hence, they believe they own the same proprietary interest another person might have in their 401(k) investment. The Roosevelt Administration and successive administrations have deliberately cultivated this view of Social Security so that people would not feel that it was an income redistribution program which might loose popularity. The government wanted Social Security recipients to feel an entitlement to the payments rather than the an embarrassment about being beneficiary of welfare program.
While the Franklin Roosevelt Administration described Social Security one way in public, they were forced to argue something else entirely in court. The Federal Government does not have the Constitutional authority to institute a mandatory social insurance program, so they argued that payments into the social security system were really taxes. Even so, it was not clear that the Federal Government had the authority for this tax. In Helvering v. Davis an intimidated Supreme Court acquiesced to this large increase in Federal power.
At present, there is a similar misrepresentation about the nature of the medical reform package passed last year. During the 2008, presidential campaign, then Senator Barack Obama made a “firm pledge to not raise taxes on those making less than $250,000 per year.
The final medical reform legislation included an “individual mandate compelling people to pay for some form of health insurance. In an seminal interview George Stephanopoulos challenged President Obama on whether this mandate constituted, in effect, a tax increase on those at all income levels, including those making less than $250,000. Here is the exchange:
STEPHANOPOULOS: That may be, but it’s still a tax increase.
OBAMA: No. That’s not true, George. The — for us to say that you’ve got to take a responsibility to get health insurance is absolutely not a tax increase…
Recently, there have been a number of suits challenging the constitutionality of the individual mandate. The Administration has now argued in court that the mandate is essentially an exercise of Congresss power to tax.
If a policy requires one public face and a contradictory legal argument to buttress it in court, even if wise, such a policy serves to undermine trust in government and weaken the moral authority important for the implementation of that policy.
It’s Not the Stimulus It’s the Regulation
Saturday, August 13th, 2011Marco economics is an observational science. It is difficult to construct controlled experiments. There always seems to be enough differences from situation to situation to introduce doubt. Nonetheless, sometimes unfair, or at least unsupported, conclusions can enter the conventional wisdom. The concept of a Keynesian stimulus may suffer this fate.
The Keynesian approach suggests that during a recession the government can stimulate the economy via spending to replace economic demand from private markets. An alternative approach championed by Milton Friedman suggests that monetary policy is more important than fiscal policy.
Democrats have traditionally favored a Keynesian approach, in no small part because it provides an additional excuse for the government to initiate spending programs to address Democratic priorities.
When President Barack Obama came into office, it was natural for the progressive to institute a massive, nearly trillion-dollar stimulus. So confident were Democrats in the efficacy of the stimulus that they promised that unemployment would not exceed 8%. We were warned that if no stimulus were instituted, unemployment would reach 9%. We now know that following the stimulus, unemployment blasted past 10%. Moreover, growth remains anemic and unemployment two-and-half years after the stimulus still exceeds 9%. More disappointing is that the officialunemployment value would be far higher if so many people had not given up hope of finding a job. The lack of growth and employment has reduced revenues exacerbating the deficit.
It is rhetorically convenient to declare in the face of these facts that Keynesism is dead, believe by only those immune to the evidence. I lend far more weight to the Friedman approach and would love to offer our current situation as definitive proof.
However, let me offer a slightly heretical view. While the current situation lends no support to the Keynesian idea of stimulus, the regulatory anchor on growth makes it impossible to tell whether the stimulus has indeed failed. Perhaps It is economic uncertainty that is restraining the economy irrespective of the stimulus.
Companies are uncertain because of a massive influx of regulations. Obamacare has passed, and mountains of rules based on the legislation are still being written. Companies, particularly small ones, are reluctant to hire uncertain of what Obamacare would require of them. The Dodd-Frank bill to regulate financial markets has introduced new banking regulations. Until these are finalized and better understood, there will be a backward tug restraining lending. This is not to mention the new regulatory aggressiveness of the the EPA anxious to implement policies bureaucratically that could never be passed legislatively. The EPA has more regulatory actions pending that the Department of Human Services which is responsible for implementing Obamacare.
Imagine the metaphor of the stimulus package being a foot on the accelerator of the economic car, with a chain of regulations strapped to the bumper. The stimulus accelerator may or may not work, but the regulatory chains make it impossible to diagnose whether the accelerator is functioning properly. The Keynesian approach may deserve death, but the current situation cannot be said to have inflicted the true final blow.
Posted in Economics, health care, healthcare, Social Commentary | 3 Comments »