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Destroying the Free Market
Too Big to Fail, Too Big to Let Be

“Underlying most arguments against the free market is a lack of belief in freedom itself.”
-Milton Friedman

“Corporation, n. An ingenious device for obtaining individual profit without individual responsibility.”
-Ambrose Bierce, The Devil's Dictionary


Introduction of 2009-Apr-30:

For many decades, the political class has constricted like a snake around the producer class, using regulations and lawsuits to erode their business models, always on the pretext of protecting workers, the public, or the environment, and often with that effect. In the end, however, the purpose of this burden is to subordinate the producer class to the political class — in effect, to enslave them. For the overarching goal of government economic policy, the political class have substituted “progress” for “growth”. Whereas growth has a substance that can't be completely obfuscated without overt and apparent debauching of plain meaning, “progress” means whatever the political class defines it to mean, and so they are largely free to define it in whichever way they expect to be of most benefit to the political class. They seek to create a zombie army of companies to pursue their agenda of “progress”, i.e. to do whatever they're told to do. They strangle companies through regulation and litigation to within an inch of their existence, so that they are too weak to fight back, but have enough residual energy to act as cooperative vehicles for the political class.



Power and Accountability, a 1991 book by Robert A. G. Monks and Nell Minow, explores the corruptions of the modern corporate system, from the point of view of a fund manager. Since the authors are themselves members of the establishment, their reformative proposals fall far short of the finish line, but this book has much to teach the dissident. Recommended. Here's the opening passage from the first chapter:

I was driving through Maine one late summer day when I stopped to admire a river running through a pretty wooded area. I noticed big, slick bubbles of industrial discharge corroding the vegetation along the riverbank, and I wondered: Who wants this to happen? Not the owners of the company, the shareholders. Not the managers or employees, who want to live in a healthy environment. Not the board of directors, not the community, not the government. I could not think of anyone connected with the company emitting the effluent who wanted the result I saw. This was an unintended consequence of the corporate structure. The very aspects of the company's design that made it so robust, so able to survive changes in leadership, in the economy, in technology, were the aspects that led to this result - pollution that no one wanted, and everyone would pay for.

I realized I was part of the problem some time later, while in my office at the Boston Safe Deposit and Trust Company, where I was Chairman of the Board. I was looking over the proxies that it was our responsibility, as trustee for $7 billion in assets, to vote, and I was preparing to do what we had always done - vote with management on all of them. I picked up the proxy for the company that produced the industrial sludge I had seen, and I realized that if I voted for management, I was endorsing this activity. Those of us who managed money on behalf of others had the opportunity, and the responsibility, to tell management that this activity was unacceptable. But none of us was doing it.

No Innocent Stockholders

There is no such thing to my mind . . . as an innocent stockholder. He may be innocent in fact, but socially he cannot be held innocent. He accepts the benefits of the system. It is his business and his obligation to see that those who represent him carry out a policy which is consistent with the public welfare.

Louis Brandeis

[...]


Here, from the London School of Economics and Political Science, Department of International Relations, International Business in the International System, is course guide for Political Environment for Global Business.

Also part of the class materials, here is The Global Shakeout by Michael Hodges and Louis Turner, a book that chronicles the economic and political consequences of the global marketplace.

See also Tony Gosling's page titled Companies now wealthier than Countries - The rise and rise of the Transnational Corporation.


See TIME Magazine's major series on corporate welfare. Big and thorough! Perhaps even a landmark.


from the Wall Street Journal, 2010-Jan-19, by Terry Miller:

The U.S. Isn't as Free as It Used to Be
Canada now boasts North America's freest economy.

The United States is losing ground to its major competitors in the global marketplace, according to the 2010 Index of Economic Freedom released today by the Heritage Foundation and The Wall Street Journal. This year, of the world's 20 largest economies, the U.S. suffered the largest drop in overall economic freedom. Its score declined to 78 from 80.7 on the 0 to 100 Index scale.

The U.S. lost ground on many fronts. Scores declined in seven of the 10 categories of economic freedom. Losses were particularly significant in the areas of financial and monetary freedom and property rights. Driving it all were the federal government's interventionist responses to the financial and economic crises of the last two years, which have included politically influenced regulatory changes, protectionist trade restrictions, massive stimulus spending and bailouts of financial and automotive firms deemed "too big to fail." These policies have resulted in job losses, discouraged entrepreneurship, and saddled America with unprecedented government deficits.

In the world-wide rankings of economic freedom, the U.S. fell to eighth from sixth place. Canada now ranks higher and boasts North America's freest economy. More worrisome, for the first time in the Index's 16-year history, the U.S. has fallen out of the elite group of countries identified as "economically free" by the objective measures of the Index. Four Asia-Pacific economies now sit atop the global rankings. Hong Kong stands in first place for the 16th consecutive year, followed by Singapore, Australia and New Zealand. Every region of the world maintains at least one country among those deemed "free" or "mostly free" by the Index.

Some countries, notably Britain and China, have followed America's poor example and curtailed economic freedom. But many others—such as Poland, South Korea, Mexico, Japan, Germany and even France—have maintained or expanded economic freedom despite the global crisis. Ignoring the pressures of recession, these enlightened nations have continued to liberalize their economies, granting their entrepreneurs and consumers greater freedom. As a result, the average Index score dropped only 0.1 point in 2010. Eighty-one countries out of the 179 ranked recorded higher scores than in 2009.

These trends are important because study after study shows a strong correlation between economic freedom and prosperity. Citizens of economically freer countries enjoy much higher per-capita incomes on average than those who live in less free economies. Economic freedom also has positive impacts on overall quality of life, political and social conditions, and even on protection of the environment. Perhaps of most significance in these hard times, Index data indicate that freer economies do a much better job of reducing poverty than more highly regulated economies.

The public sector can't match the vitality of the private sector in promoting growth. Governments, even those that promise change, are primarily agents of the status quo. They tend to reflect the views and needs of those already holding political or economic power. Even democratic nations have their vested interests. Real change, however, can happen when those outside the mainstream have the freedom to try new things: new production processes, new technologies and new methods of organizing workers and capital.

It is common these days to dismiss as simpletons or ideologues those who speak in favor of the free market or capitalism. An honest assessment shows otherwise. Economic freedom, as represented in the Index of Economic Freedom, is a philosophy that rejects economic dogma, championing instead the diversity that follows when entrepreneurs are free to choose their own paths to prosperity.

The abiding lesson of the last few years is that the battle for liberty requires perpetual vigilance. President Obama professes desire to foster prosperity, environmental protection, poverty reduction and better health care. How ironic, then, that his economic proposals so consistently ignore or even undermine the one system—free enterprise capitalism—that has proven best able to achieve those goals.

Now America's once high-flying economy is barely crawling forward. Americans deserve better, and they can do better—as soon as they reverse course and start regaining the economic freedom that made America the most prosperous country in the world.

Mr. Miller is director of the Center for International Trade and Economics at the Heritage Foundation. He is co-editor, with Kim R. Holmes, of the "2010 Index of Economic Freedom" (471 pages, $24.95), available at heritage.org/index.

This next item is here to quantify the proposition that the means of production in the US is now held collectively, à la Marxism, via the institutional investor apparatus. Mr. Bogle's purportedly palliative prescription actually exacerbates the situation. He promotes active participation of fund managers in the operations of the firms they've invested in, and even pitches new federal transaction and capital gain taxes on securities to coerce the market behavior he desires.

from the Wall Street Journal, 2010-Jan-18, by John C. Bogle:

Restoring Faith in Financial Markets
It is time institutional investors exerted control over publicly held companies.

'Investing is an act of faith." So I wrote in 1999, the very first sentence of my book, "Common Sense on Mutual Funds." But as 2009 ended, writing in the updated 10th anniversary edition after the passage of this turbulent decade, I concluded that "the faith of investors has been betrayed."

How so? Because the returns generated by our corporate stewards have often been illusory, created by so-called financial engineering and produced only by the assumption of massive risks. What's more, too many of our professional money managers have failed to act as vigilant stewards of the money that we investors entrusted to them.

In short, far too many of our corporate and financial agents have failed to honor the interests of their principals—the mutual fund investors and pension beneficiaries to whom they owed a fiduciary duty. The ramifications were widespread—for the failure of money managers to observe the principles of fiduciary duty played a major role in allowing our corporate managers to place their own interests ahead of the interests of their shareholders.

Over the relatively brief span of a half century, our institutional agents have come to be the dominant force in corporate America. Institutional investors held less than 10% of all U.S. stocks in the mid-1950s, 35% in 1975, and 53% a decade ago, and now institutional investors own and control almost 70% of the shares of U.S. corporations. Mutual funds own the predominant amount, 26%; private pension plans another 11% and government pension plans another 9%.

The rise of agency ownership has been steady, and seemingly inexorable. But this revolution in equity ownership—it is no less than that—has been accompanied by many shortcomings, in part because it linked the agents of corporate America with the agents of investment America. As Leo E. Strine, vice chancellor of the Delaware Court, observed in a speech in 2007, "No longer are the equity holders of public corporations diffuse and weak . . . (they) represent a new and powerful form of agency, which presents its own risks to both individual investors and . . . the best interests of our nation." Yet, he noted, professional money managers are no less likely "to exploit their agency than the managers of corporations that make products and deliver services."

First, the folly of short-term speculation has replaced the wisdom of long-term investing as the star of capitalism. A rent-a-stock system has replaced the earlier own-a-stock system. In 2009, the average stock turnover appears to have exceeded 250% (changed hands two and a half times), compared to 78% a decade ago, and 21% barely 30 years ago.

Result: The momentary illusion of the price of a stock took center stage, replacing the enduring reality of the company's intrinsic value—the discounted value of its future cash flow. Our newly empowered agents ignored the famous warning of Benjamin Graham in "The Intelligent Investor" that "in the short run, the market is a voting machine; in the long run, it is a weighing machine."

Two, the financial sector became the driving force in the U.S. economy. During the past decade, revenues of stock exchange firms (excluding trading gains or losses) rose to an estimated $375 billion from $200 billion, and mutual fund fees and expenses rose to nearly $100 billion from $47 billion. The higher these intermediation costs, of course, the lower the returns to investors as a group. Alas, in this Alice-in-Wonderland world of the financial markets, the investor feeds at the bottom of the food chain.

Three, innovation became the buzzword of the era. But innovation was dominated by complex new products, such as credit default swaps and collateralized debt obligations, designed to make money for Wall Street firms rather than for their clients. Former Federal Reserve Chairman Paul Volcker recently opined that the only financial innovation of the era that created value was the ATM. (He has also agreed that the index fund created substantial value for investors.)

Four, all of this speculative market activity and costly marketing activity seemed to lead institutional money managers to ignore the realities that drove the balance sheets and income statements of the companies held in their portfolios, a striking failure of professional security analysis. "Financial engineering" was left to run rampant and "anything goes" seemed to be the rule in the quest to meet earnings guidance. The late Robert Bartley, long-time editor of this newspaper, got it right when he wrote in The American Spectator (Dec. 2003-Jan. 2004), "true profits are represented by cash—a fact—rather than reported profit—an opinion."

Five, absent the check of their institutional owners, corporations pushed executive compensation to unprecedented heights. From 42 times the average worker's salary in 1980, the compensation of the typical chief executive of a U.S. corporation now approaches a staggering 400 times the average worker's salary. Despite the collapse in corporate earnings during the recent financial crisis, there are few signs that executive compensation has been significantly affected.

While many social forces contributed to these aberrations in capitalism, the dominance of our new agency system played the major role. Regulation alone will not be sufficient to correct these gross abuses, for the self-interest of our agents, abetted by powerful and well-financed lobbyists—paid for, finally, by the very corporate and mutual fund shareholders whom new regulations are designed to serve. There are few regulations that smart, motivated, targets cannot evade.

The process of restoring the faith of investors must begin with a demand that the agent/owners of investment America stand up for the rights of their principals/beneficiaries. What we need is congressional action to establish a federal principle of fiduciary duty—encapsulated by the phrase "no man can serve two masters."

This principle will require institutional managers (1) to act solely in the interests of their shareholders and beneficiaries; (2) to observe due diligence and professional standards in their investment practices; (3) to honor their responsibilities as owners by active participation in corporate governance; and (4) to eliminate conflicts of interests in their activities.

Together, these standards would require the giant financial institutions of investment America to behave as owners of corporate America, actively voting proxies in the interests of their principals; playing a role in dividend payouts and executive compensation as well as in mergers and acquisitions; limiting (or even eliminating) excessive stock options; and demanding the independence of directors from management (including the separation of the roles of chief executive and board chairman).

In addition, policy makers ought to be considering structural changes that would enhance the role of investors and diminish the role of speculators. For example, granting longer-term (say, two- to five-year holders of stock) extra voting rights and/or a higher dividend; a federal transfer tax on securities transactions; or a tax on short-term realized capital gains (say, shares held for less than six months), applicable to taxable as well as tax-exempt investors such as IRAs.

As the new year and the new decade begin, it is time to restore the faith of investors in our interlinked corporate and financial systems. This is not a task for the fainthearted, or for the impatient.

Early in 2002, I called for the creation of a Federation of Long-Term Investors, in which institutional investors—including the giant index fund managers who alone hold some 15% of U.S. stocks—would join together to force these long-overdue changes and exert their ownership power over our publicly-held companies.

Then, I found few allies. Today, perhaps, this is an idea whose time has come.

Mr. Bogle is founder and former chief executive of the Vanguard Group. The 10th anniversary edition of his "Common Sense On Mutual Funds" was published by Wiley last month.

from the Los Angeles Times, 2010-Jan-30, by Tom Petruno:

Who helped corporate rich get richer? You did

In the banking industry in 2009, the rich got richer -- which has, of course, infuriated much of the nation.

But that same basic idea, mostly minus the public infuriation factor, is playing out across the business world.

The Great Recession has killed untold numbers of small firms, many of which were unable to line up financing to keep their operations afloat.

But money is no problem at all for corporate America. And the biggest businesses don't need banks, at least not for loans. As the credit crisis has eased, they've been able to turn to the welcoming arms of the bond market.

Recessions always are about the weak falling away while the strong survive. But this time around, the credit crunch has remained so severe for smaller firms that the advantage has been magnified for the major companies that have unfettered access to cash via bond sales.

Issuance of high-quality (i.e., investment-grade) bonds reached a record $2.83 trillion worldwide last year, a stunning 38% jump from 2008, according to data tracker Dealogic. Although governments were heavy borrowers, about half of that total raised was by big-name companies.

Who helped make the corporate rich even richer? You did -- if you're one of many Americans who pumped your savings into bond mutual funds. An unprecedented $375 billion poured into bond funds in 2009, providing a significant chunk of the capital that then flowed into newly issued bonds from companies such as General Electric Co., Pfizer Inc. and Dow Chemical Co.

And like any symbiotic relationship, this one has no good reason to end. While many investors now shun the stock market, their hunger for income may keep demand for corporate bonds strong in 2010 and beyond.

A bond is a promise to pay -- first, to pay a rate of interest each year, and second, to repay the investor's principal when the bond matures on a set date, if not before. Understandably, after the financial markets' crash of 2008, a promise to pay sounds a lot better to shell-shocked investors than taking a flier on a stock.

For a company like GE or Pfizer, bonds offer a way to raise large sums of cash at set interest rates. Those rates were declining for much of 2009 as fear subsided in financial markets and as investors bid aggressively for fixed-income securities.

It isn't just the Fortune 500 that can borrow through bonds, but this isn't a market that's open to the millions of small firms that have been the most starved for credit over the last 18 months.

Last year, the massive sums raised from corporate bond sales allowed some companies to pay off bank loans or bonds previously issued at higher interest rates. Others used the money to finance takeovers. And some firms just built up their cash reserves to bolster their finances.

The amount of cash on the balance sheets of the industrial companies in the Standard & Poor's 500 index soared to a record $820 billion as of Sept. 30 from $647 billion a year earlier, according to S&P.

Because cash pays nothing, big companies should be feeling pressure to put those dollars to more productive use -- say, by expanding.

But we live in a still-struggling global economy that already has too much vacant office space and too many idled factories. "Who needs more capital goods or structures with 15% excess capacity lurking in most economies?" said Carl Weinberg, chief economist at High Frequency Economics in Valhalla, N.Y.

Likewise, many big companies believe they have no need for additional workers, which is why double-digit unemployment has become the black cloud over the economic recovery of the last six months.

Yet even in the best of times, the Fortune 500 aren't engines of job growth in the U.S. "Almost all of the new jobs and investment in any economy come from small companies morphing into larger ones," Weinberg notes. "If they get squeezed, the economy loses its dynamism."

That's one of the great long-term risks the U.S. faces from the corporate-rich-get-richer syndrome that bond investors are abetting. If capital is being misallocated -- meaning, if its most productive use would be with smaller companies, except that they can't get into the bond market and they can't get loans from banks -- the economy can't live up to its true potential.

While corporate titans benefited from the bond market's largess last year, many also have been reaping the rewards of the ruthless drive to reduce head count and slash other costs. Even modest growth in sales now is falling directly to the bottom line.

The result: Fourth-quarter earnings reports from the S&P 500 index companies are coming in far above Wall Street analysts' expectations. Of the 220 companies in the index that have reported results so far, 78% have beaten estimates, according to data firm Thomson Reuters. And on average, earnings have been 17% above expectations -- a "surprise" factor that, if it holds up, would be the highest for any quarter since Thomson Reuters began tracking data in 1994.

It could be that analysts, more than usual, are lowballing their estimates to make it easier for companies to post pleasant surprises. Still, there's no question that earnings have improved dramatically for the biggest firms.

That profit rebound should be good news for stock prices, and it was for much of the last 10 months. But the equity market has hit an air pocket over the last two weeks.

On Friday, the Dow Jones industrial average lost 53.13 points, or 0.5%, to 10,067.33, its lowest since Nov. 6. The Dow has slid 6.1% from its 15-month high of 10,725 on Jan. 19.

Despite the government's report Friday that the economy expanded at a strong 5.7% annualized rate in the fourth quarter, there are more questions now than even a few weeks ago about the sustainability of the recovery.

If those doubts grow, Wall Street could face another downdraft. And if investors grow warier of stocks, they may turn in even greater numbers to the relative safety of high-quality corporate bonds.

One unusual twist in the bond market this year is that global investors may have reason to feel more secure in bonds of mega-companies than in bonds of some foreign governments. This week, worries about Greece's dire fiscal situation also infected other Southern European countries. Investors pushed yields on Greek, Portuguese and Spanish bonds sharply higher, a sign of eroding faith in the countries' creditworthiness.

Mark Kiesel, who manages the $6.5-billion Pimco Investment Grade Corporate Bond mutual fund in Newport Beach, says he's betting that many high-quality corporate bonds will continue to attract investors looking for decent annualized yields -- in the 5% to 7% range -- and balance sheets strong enough to weather a still-rough economy.

"Corporate America," Kiesel says, "is a cash-flow machine."

That isn't any solace to the unemployed, but it offers a level of comfort that is bond investors' No. 1 priority.

from the Washington Examiner, 2009-Dec-30, by Michael Barone:

It's a wonderful life working for the government

It looks like a happy new year for you -- if you're a public employee.

That's the takeaway from a recent Rasmussen poll that shows that 46 percent of government employees say the economy is getting better while just 31 percent say it's getting worse. In contrast, 32 percent of those with private-sector jobs say the economy is getting better, while 49 percent it is getting worse.

Nearly half, 44 percent, of government employees rate their personal finances as good or excellent. Only 33 percent of private-sector employees do.

It sounds like public- and private-sector employees are looking at different Americas. And they are.

Private-sector employment peaked at 115.8 million in December 2007, when the recession officially began. It was down to 108.5 million last November. That's a 6 percent decline.

Public-sector employment peaked at 22.6 million in August 2008. It fell a bit in 2009, then has rebounded back to 22.5 million in November. That's less than a 1 percent decline.

This is not an accident; it is the result of deliberate public policy. About one-third of the $787 billion stimulus package passed in February 2009 was directed at state and local governments, which have been facing declining revenues and are, mostly, required to balance their budgets.

The policy aim, Democrats say, was to maintain public services and aid. The political aim, although Democrats don't say so, was to maintain public-sector jobs -- and the flow of union dues to the public employees unions that represent almost 40 percent of public-sector workers.

Those unions in turn have contributed generously to Democrats. Services Employee International Union head Andy Stern, the most frequent nongovernment visitor to the Obama White House, has boasted that his union steered $60 million to Democrats in the 2008 cycle. The total union contribution to Democrats has been estimated at $400 million.

In effect, some significant portion of the stimulus package can be regarded as taxpayer funding of the Democratic Party. Needless to say, no Republicans need apply.

One must concede that there is something to the argument that maintaining government spending levels helps people in need and provides essential public services. Something, but not everything.

For it's more difficult to cut waste and unnecessary spending from government agencies than from private-sector businesses.

As Charles Peters, founder of the neoliberal Washington Monthly, noted years ago, when government is ordered to cut spending, it does things like closing the Washington Monument to visitors. Tourists from the 50 states and 435 congressional districts quickly squawk to their members of Congress, and the spending cuts are rescinded.

When businesses must cut, they do so with an eye to profits -- which is to say, with an eye to providing consumers with goods and services they need enough to be willing to pay for. They tend to lay off unproductive employees while striving to retain productive ones.

Governments, restrained by civil service rules and often by union contracts, do not have similar incentives.

As for the argument that maintaining government payrolls pumps money into the private-sector economy -- well, where does that government money come from? From private-sector employees and employers or from those who buy government bonds and who must be repaid by government in the future.

At some point -- and this already has occurred in much of Western Europe -- public sector spending tends to choke off private-sector growth. America's current high unemployment levels have been commonplace in much of Western Europe for the last 25 years.

The question now is whether they will become commonplace in the United States in the decade ahead. The decision by the Obama administration and the Democratic Congress to hold public-sector employees in place while the private sector is gravely weakened has the potential to place us on that trajectory.

The unemployment data show that this recession has had a much greater effect on private-sector workers than on public employees, on men than on women, on blue-collar workers than on white-collar employees.

This seems not to have gone unnoticed. Democrats have been surprised that so many downscale voters oppose their big spending programs. Maybe many of those voters have noticed how much of that spending has gone to public-sector union members, leaving the rest of America with a less than happy new year.

Michael Barone, The Examiner's senior political analyst, can be contacted at mbarone@washingtonexaminer.com. His columns appear Wednesday and Sunday, and his stories and blog posts appear on ExaminerPolitics.com.

from the Heritage Foundation, 2010-Jan-22, by James Sherk:

Majority of Union Members Now Work for the Government

New data from the Bureau of Labor Statistics (BLS) show that a majority of American union members now work for the government. The pattern of unions adding members in government while losing members in the private sector accelerated during the recession. The typical union member now works in the Post Office, not on the assembly line.

Representing government employees has changed the union movement's priorities: Unions now campaign for higher taxes on Americans to fund more government spending. Congress should resist government employee unions' self-interested calls to raise taxes on workers in the private sector.

Overall Union Membership Down Slightly

The BLS's annual report on union membership shows the labor movement's decline in membership continued in 2009. While a full 23.0 percent of Americans belonged to labor unions in 1980, by 2008 only 12.4 percent did.[1] In 2009, that figure dropped slightly to 12.3 percent.[2] There are now 15.3 million union members in the United States, 770,000 fewer than in 2008.[3]

This decrease in union membership is hardly news: Since the beginning of the current recession, 6 million workers have lost their jobs.[4] Union membership unsurprisingly fell as employment shrank.

Most Union Members Now in Government

What is newsworthy, however, is another figure reported by the BLS: 52 percent of all union members work for the federal or state and local governments, a sharp increase from the 49 percent in 2008.[5] A majority of American union members are now employed by the government; three times more union members now work in the Post Office than in the auto industry.[6]

Majority of Union Workers Now Work in Public Sector

While the fact that the majority of union members are government employees is historic, the growth of government employee unions is hardly a recent development. Union membership has steadily grown in government and shrunk in the private sector since the 1970s.

Why Government Unions Have Grown

In 2009, government employees came to constitute the majority of union members for two reasons. First, union membership rates fell in the private sector. Unionized companies do poorly in the marketplace and lose jobs relative to their nonunion competitors.[7] Toyota and Honda have gained jobs as General Motors and Chrysler have lost them. Thousands of repetitions of this dynamic caused private-sector union membership to fall from 20.1 percent to 7.6 percent between 1980 and 2008. In 2009, private-sector union membership fell further to 7.2 percent. Competition undermines unions.

Government employees, however, face no competition as the government never goes out of business. As a result, government employees organize at far higher rates. A full 37.4 percent of government employees belonged to unions in 2009, up 0.6 percentage points from 2008.[8]

Second, the private sector lost millions of jobs during the recession while government employment increased slightly. Union membership moved with the jobs. Private-sector unions lost 834,000 members in 2009 while public-sector unions actually gained 64,000 members.[9] Both of these factors combined to make government employees a majority of the union movement.

Transformation of the Labor Movement

This shift has transformed the labor movement. Some historians argue that unions were created to prevent profit-minded employers from exploiting workers and to win workers a share of business profits.[10] However, neither of these purposes makes sense in government. As former AFL-CIO President George Meany wrote, "It is impossible to bargain collectively with the government."[11]

Collective bargaining gives government employees the power to tell voters how to spend their tax dollars instead of the other way around. That is why early labor leaders rejected it as undemocratic. As recently as 1959 the AFL-CIO Executive Council stated that "government workers have no right [to collectively bargain] beyond the authority to petition Congress--a right available to every citizen."[12]

Not until the 1960s did federal, state, and local governments change the law to permit government employees to collectively bargain with taxpayers. Now unions primarily represent the government--a development that has shifted the labor movement's focus from redistributing business profits to getting more from taxpayers.

Government Employees Earn More

The labor movement has, thus far, been very successful in this goal. The average worker for a state or local government earns $39.83 an hour in wages and benefits compared to $27.49 an hour in the private sector.[13] While over 80 percent of state and local workers have pensions, just 50 percent of private-sector workers do.[14] These differences remain after controlling for education, skills, and demographics.[15] Taxpayers now pay for unionized government jobs paying notably more than those available in the private sector.

Government Unions Campaign for Tax Increases

Representing government employees has turned unions into determined supporters of tax increases and more government spending. Higher taxes mean the government can hire more workers and pay higher wages. As a result, public-sector unions have become a potent force lobbying for higher taxes and against spending reductions across America:

Recommendations to Congress

For the first time in American history, most union members work for the government. Competition has eroded private-sector unions while public-sector unions have thrived. Three times as many union members now work for the Post Office as in the auto industry. Unions now represent the government and have changed their priorities from getting money from businesses to getting money from taxpayers.

Congress should recognize that unions have narrowly self-interested reasons for lobbying for tax and spending increases. Congress should reject union calls for higher taxes. Government employees already earn more than private-sector workers. Congress should also reject proposals to increase union membership in the government, such as requiring the state and local governments that do not collectively bargain to do so.

James Sherk is Bradley Fellow in Labor Policy in the Center for Data Analysis at The Heritage Foundation.


[1]Barry T. Hirsch and David A. Macpherson, "Union Membership and Coverage Database from the Current Population Survey," Unionstats.com, at http://www.unionstats.com (January 21, 2010).

[2]U.S. Department of Labor, Bureau of Labor Statistics, "Union Members in 2009," January 22, 2010. Note that the difference in union membership between 2008 and 2009 is not statistically significant.

[3]Ibid.

[4]U.S. Department of Labor, Bureau of Labor Statistics, the Employment Report/Haver Analytics. Note that this figure comes from the Household survey, which also measures union membership, not the more commonly reported establishment survey employment figures.

[5]Heritage Foundation calculations based on data from U.S. Department of Labor, Bureau of Labor Statistics, "Union Members in 2009."

[6]Heritage Foundation calculations using data from the U.S. Department of Labor, Bureau of Labor Statistics, 2009 Outgoing Rotation Groups of the Current Population Survey. In 2009 a total of 501,000 union members worked for the Post Office while only 162,000 worked in motor vehicle and motor vehicle equipment manufacturing. This was sharply down from the 289,000 union members who worked in that sector in 2008.

[7]James Sherk, "What Unions Do," Heritage Foundation Backgrounder No. 2275, May 21, 2009, at http://www.heritage.org/research/labor/bg2275.cfm.

[8]Note that this is approximately the average union rate in the public sector since the 1980s.

[9]Ibid.

[10]Whether unions achieve these goals is debatable, but they are the goals private-sector unions see themselves as pursuing.

[11]Leo Kramer, Labor's Paradox: The American Federation of State, County and Municipal Employees, AFL-CIO (New York, NY: Wiley, 1962) p. 41.

[12]Ibid.

[13]U.S. Department of Labor, Bureau of Labor Statistics, "Employer Costs for Employee Compensation," Q3 2009.

[14]James Sherk, "Fiscal Impacts of Public Sector Unions," Table 3, in "Sweeping the Shop Floor: A New Labor Model for America," forthcoming from the Evergreen Freedom Foundation. Figures are for full-time workers between 20 and 65 and come from author's analysis of March 2006-2009 CPS data. Calculations available from the author upon request.

[15]Ibid., Tables 4-6.

[16]Mary Jo Pitzel, "With Some Vetoes, Budget Finally OK'd," The Arizona Republic, September 5, 2009, at http://afscmemn.org/sites/
afscmemn.org/files/budget%20forecast%2012-02-09.pdf (January 21, 2010); Arizona Education Association, "Stop the School Tax Cut," at http://www.arizonaea.org/politics.php?page=390 (January 21, 2010).

[17]Arizona Education Association, "Arizona Has Budget Choices," http://www.arizonaea.org/pdfs/politics/CAA_Budget_Options.pdf (January 21, 2010).

[18]Eric Bailey, "SEIU Pushes for Oil, Tobacco, Liquor Taxes," Los Angeles Times, LA NOW Blog, June 10, 2009, at http://latimesblogs.latimes.com/lanow/2009/06/union-strikes-back.html (January 21, 2010).

[19]See http://fairbudgetil.com/ (January 21, 2010).

[20]Maine Commission on Governmental Ethics and Election Practices, "PAC Summary Citizens Unified for Maine's Future," at http://www.mainecampaignfinance.com/public/entity_summary.asp
?TYPE=PAC&ID=4499&LIMIT=&YEAR=2009 (January 21, 2010).

[21]Press release, "AFSCME Endorses Debbie White to Challenge Incumbent Rep. Pelowski," American Federation of State and County Municipal Employees Council 5, December 16, 2009, at http://afscmemn.org/sites
/afscmemn.org/files/AFSCME%20endorses%20Debbie%20White12-16-09.pdf (January 21, 2010).

[22]Press release, "AFSCME Offers a Better Budget Fix," AFSCME Council 5, December 2, 2009, at http://afscmemn.org/sites/afscmemn.org/files/budget
%20forecast%2012-02-09.pdf (January 21, 2010).

[23]Caren Chesler, "Power Play: Ex-Ironworker Stephen Sweeney Is Suddenly the State's Top Democrat. What's Next?," New Jersey Monthly, December 14, 2009, at http://njmonthly.com/articles/lifestyle/power
-play.html (January 21, 2010).

[24]David Steves, "Campaigns Spend with Gusto," The Register Guard, January 7, 2010, at http://www.registerguard.com/csp/cms/
sites/web/news/cityregion/24326224-41/state-oregon-campaign-
employees-measures.csp (January 21, 2010).

[25]David Steves, "State Gives Its Workers Big Benefits," The Register Guard, November 8, 2009, at http://www.registerguard.com/csp/cms/sites
/web/news/cityregion/22641140-57/story.csp (January 21, 2010).

[26]Andrew Garber, "State Democrats Facing Revolt by Labor," Seattle Times, November 11, 2009, at http://seattletimes.nwsource.com/html/
politics/2010246447_democrats11m.html (January 21, 2010).

from the Wall Street Journal, 2009-May-14, p.A17, by Steve Malanga:

Unions vs. Taxpayers
Organized labor has become by far the most powerful political force in government.

Across the private sector, workers are swallowing hard as their employers freeze salaries, cancel bonuses, and institute longer work days. America's employees can see for themselves how steeply business has fallen off, which is why many are accepting cost-saving measures with equanimity -- especially compared to workers in France, where riots and plant takeovers have become regular news.

But then there is the U.S. public sector, where the mood seems very European these days. In New Jersey, which faces a $3.3 billion budget deficit, angry state workers have demonstrated in Trenton and taken Gov. Jon Corzine to court over his plan to require unpaid furloughs for public employees. In New York, public-sector unions have hit the airwaves with caustic ads denouncing Gov. David Paterson's promise to lay off state workers if they continue refusing to forgo wage hikes as part of an effort to close a $17.7 billion deficit. In Los Angeles County, where the schools face a budget deficit of nearly $600 million, school employees have balked at a salary freeze and vowed to oppose any layoffs that the board of education says it will have to pursue if workers don't agree to concessions.

Call it a tale of two economies. Private-sector workers -- unionized and nonunion alike -- can largely see that without compromises they may be forced to join unemployment lines. Not so in the public sector.

Government unions used their influence this winter in Washington to ensure that a healthy chunk of the federal stimulus package was sent to states and cities to preserve public jobs. Now they are fighting tenacious and largely successful local battles to safeguard salaries and benefits. Their gains, of course, can only come at the expense of taxpayers, which is one reason why states and cities are approving tens of billions of dollars in tax increases.

It's not as if we haven't seen this coming. When the movement among public-sector workers to unionize began gathering momentum in the 1950s, some critics, including private-sector labor leaders such as George Meany, observed that government is a monopoly not subject to the discipline of the marketplace. Allowing these workers -- many already protected by civil-service law -- to organize and bargain collectively might ultimately give them the power to hold politicians and taxpayers hostage.

It wasn't long before such fears were realized. By the mid-1960s, dozens of cities across America were wracked by teachers' strikes that closed school systems. Groups like New York City's transit workers walked off the job in 1966, bringing business in Gotham to a near halt. The United Federation of Teachers led an illegal strike which closed down New York City schools in 1968.

Widespread ire against strikes by public workers produced legislation in many states outlawing them. That prompted government workers to retreat from the picket lines into the halls of government. In Washington, they organized political action committees, set up sophisticated lobbying efforts, and used their muscle to help elect sympathetic public officials.

Today, public-sector unions sit atop lists of organizations that devote the most money to lobbying and campaign contributions.

In Pennsylvania, a local think tank, the Commonwealth Foundation, counted the resources of the state's teachers union a few years ago. It had 11 regional offices, 275 employees and $66 million in annual dues. In Connecticut, representatives of the teachers union camped outside the legislators' doors in 2005 to keep tabs on school reformers who were calling on these officials to expand school choice.

And in California, unions spent more than $50 million in 2005 to defeat a series of ballot proposals that would have capped growth in the state's budget. Now the state's teachers union is putting its clout behind a ballot initiative, to be voted on next week, that would restore more than $9 billion in educational spending cut from the state's budget.

The results of such efforts are evident in the rich rewards that public-sector employees now enjoy. A study in 2005 by the nonpartisan Employee Benefit Research Institute estimated that the average public-sector worker earned 46% more in salary and benefits than comparable private-sector workers. The gap has only continued to grow. For example, state and local worker pay and benefits rose 3.1% in the last year, compared to 1.9% in the private sector, according to the Bureau of Labor Statistics (BLS).

But the real power of the public sector is showing through in this economic crisis. Some five million private-sector workers have lost their jobs in the last year alone, and their unemployment rate is above 9% according to the BLS. By contrast, public-sector employment has grown in virtually every month of the recession, and the jobless rate for government workers is a mere 2.8%. For anyone who thinks such low unemployment numbers are good news, remember that the bulging public sector must be paid for with revenues that most governments don't currently have. This is one reason for a spate of state and local tax increases, such as $5 billion in tax increases New York state passed in April, and $12 billion in tax increases California's legislature agreed to in February that will only become law if voters pass a series of ballot initiatives next week.

The next lesson we are likely to learn is that voter revolts against new taxes are no longer effective because of the might that these public- sector groups now wield. The tax-cut uprising of the late 1970s began in California with Proposition 13 capping property taxes. It then spread to more than a dozen states before it became a national movement that helped elect Ronald Reagan. The next tax revolt, during the recession of the early 1990s, helped sink officials like New Jersey Gov. James Florio and produced ballot propositions in places like Colorado that capped spending or made tax increases more difficult.

Now powerful and savvy, public unions have moved effectively to quash antitax movements. In New Jersey, public unions derailed a taxpayer revolt in 2005 by using their legislative clout to water down a bill that would have created a state constitutional convention to enact property-tax reform. Meanwhile, under pressure from unions, state legislatures in places like Florida have been tightening rules and requirements for passing voter initiatives and referenda -- blunting a favorite tool of antitax groups.

In states like Iowa where public unionization rates are still low government workers have had to accept concessions. But allies of the unions in Washington are working to rectify that situation with union-friendly legislation like the card check bill, which will make organizing much easier.

In the private sector such efforts will still be subject to the demands of the marketplace. Employers who are too generous with pay and benefits will be punished. In the public sector, however, more union members means more voters. And more voters means more dollars for political campaigns to elect sympathetic politicians who will enact higher taxes to foot the bill for the upward arc of government spending on workers. That will be the pattern for the indefinite future unless taxpayers find a way to roll back the enormous power public workers have acquired.

Mr. Malanga is a senior fellow at the Manhattan Institute.

from the Wall Street Journal, 2010-Jan-20, by Daniel Henninger:

The Fall of the House of Kennedy
The battle over who defines the work and institutions that make a nation thrive and grow.

Scott Brown's victory in Massachusetts will not endure unless Republicans clearly understand the meaning of "the machine" that he ran against and defeated.

Yes, it is about a general revulsion at government spending, what is sometimes called "the blob." But blobs are shapeless things, and in the days ahead we will see the Obama White House work hard to reshape the blob into a deficit hawk. Unless the facade is ripped away, the machine will survive.

The revolt against the machine began with voters' 2006 ouster of the Republican majority in Congress for making a mockery of fiscal rectitude. An angry electorate then swept Barack Obama into office. Now Mr. Obama is saying voters elected him on the same wave of anger that elected Scott Brown. Sorry, but Messrs. Obama and Brown are not surfing in the same political ocean.

The central battle in our time is over political primacy. It is a competition between the public sector and the private sector over who defines the work and the institutions that make a nation thrive and grow.

In 1962, President John F. Kennedy planted the seeds that grew the modern Democratic Party. That year, JFK signed executive order 10988 allowing the unionization of the federal work force. This changed everything in the American political system. Kennedy's order swung open the door for the inexorable rise of a unionized public work force in many states and cities.

This in turn led to the fantastic growth in membership of the public employee unions—The American Federation of State, County and Municipal Employees (AFSCME), the Service Employees International Union (SEIU) and the teachers' National Education Association.

They broke the public's bank. More than that, they entrenched a system of taking money from members' dues and spending it on political campaigns. Over time, this transformed the Democratic Party into a public-sector dependency.

They became different than the party of FDR, Truman, Meany and Reuther, That party was allied with the fading industrial unions, which in turn were tethered to a real world of profit and loss.

The states in the North and on the coasts turned blue because blue is the color of the public-sector unions. This tax-and-spend milieu became the training ground for their politicians.

Until the Obama exception, the only recent Democrats electable into the presidency had to be centrist Southerners little known to the country. Every post-Kennedy liberal who tried, failed, including Teddy.

What an irony it is that in the same week the Kennedy labor legacy hit the wall in Massachusetts, the NEA approved a $1 million donation from the union's contingency fund to the Edward M. Kennedy Institute for the United States Senate. It is this Kennedy legacy, the public union tax and spend machine, that drove blue Massachusetts into revolt Tuesday.

Yes, health care was ground zero, but Massachusetts—like New Jersey, like California, like New York—has been building toward this explosion for years.

According to a study done for the Massachusetts Institute for a New Commonwealth, spending in specific public categories there skyrocketed the past 20 years (1987 to 2007).

Public safety: up 139%; social services, 130%; education, 44%. And of course Medicaid Madness, up 163%, before MassCare kicked in more Medicaid obligations.

But here's the party's self-destroying kicker: Feeding the public unions' wage demands starved other government responsibilities. It ruined our ability to have a useful debate about any other public functions.

Massachusetts' spending fell for mental health, the environment, housing and higher education. The physical infrastructure in blue states is literally falling apart. But look at those public wage and pension-related outlays. Ever upward.

Enter the Obama administration, the first one born and raised inside this public bubble, with zero private-sector Cabinet members. Act one: a $787 billion stimulus bill, which they brag mainly saved state and local jobs. Then came the six-month odyssey for Obama's $1 trillion health-care bill, dripping with taxes. Independent voters felt like everything was being sucked into a public-sector vortex.

This is why New Jersey's Chris Christie won running on nothing. It's why in California Carly Fiorina is within three points of Sen. Barbara Boxer. It's why the party JFK enabled, "the machine," is hitting the wall.

There's no way out for these Democrats. They made a Faustian bargain 40 years ago with the public unions. For the outlays alone, they'll get some version of the Obama health-care bill. They'll also go to the same old "populist anger" well.

Scott Brown's victory has given the GOP a rare, narrow chance to align itself with an electorate that understands its anger. Now the GOP has to find a way to disconnect from a political legacy that smothered governments at all levels and is now smothering the Democratic Party.

from the New York Times, 2010-Jan-26, by David M. Herszenhorn and Robert Pear:

Democrats Slam Brakes on Health Care Overhaul

WASHINGTON — With no clear path forward on major health care legislation, Democratic leaders in Congress effectively slammed the brakes on President Obama's top domestic priority on Tuesday, saying that they no longer felt pressure to move quickly on a health bill after eight months of setting deadlines and missing them.

The Senate majority leader, Harry Reid, Democrat of Nevada, deflected questions about health care. “We're not on health care now,” he said. “We've talked a lot about it in the past.” He added, “There is no rush,” and noted that Congress still had most of this year to work on the health bills passed in 2009 by the Senate and the House.

Mr. Reid said that he and the House speaker, Nancy Pelosi of California, were working to map out a way to complete a health care overhaul in coming months. “There are a number of options being discussed,” Mr. Reid said, emphasizing “procedural aspects” of the issue.

At the same time, two centrist Democratic senators who are up for re-election this year, Blanche L. Lincoln of Arkansas and Evan Bayh of Indiana, said that they would resist efforts to muscle through a health care bill using a parliamentary tactic called budget reconciliation, which seemed to be the simplest way to advance the measure.

The White House has said in recent days that it would support that approach.

Some Democrats said that they did not expect any action on health care legislation until late February at earliest, perhaps after Congress returns from a weeklong recess. But the Democrats stand to lose momentum, and every day closer to the November election that the issue remains unresolved may reduce the chances of passing a far-reaching bill.

The gear-shift by Democrats underscored how the health care effort had been derailed by the Republican victory in the Massachusetts special election last week, which effectively denied Democrats the 60th vote they need to be sure of overcoming a Republican filibuster in the Senate. Originally, Mr. Reid wanted to finish a bill early last August.

The comments by lawmakers also served to lower expectations for the president's State of the Union speech on Wednesday. Lawmakers said they did not expect Mr. Obama to lay out a specific strategy.

“I would be surprised if he says specifically exactly how he hopes to get health care done,” the House majority leader, Steny H. Hoyer of Maryland, said.

None of the options available to lawmakers, including the use of budget reconciliation, seems viable at the moment. Some lawmakers said they expected Congress to try to adopt a greatly pared down bill once it returns to the issue.

“Frankly, we're trying to figure out what is possible,” Mr. Hoyer said. “Senator Reid needs to determine what is possible on his side of the aisle, you know, what kind of support he can get. And we're trying to figure out as well what we can pass.”

Speaker Pelosi has said that House Democrats would not simply vote to approve the version of the health care bill adopted by the Senate on Dec. 24 and send it directly to Mr. Obama for his signature. But a plan to win over House members by adopting changes to the Senate bill through the budget reconciliation process, which is not vulnerable to filibuster, ran into substantial resistance on Tuesday.

Mrs. Lincoln, who faces one of the toughest re-election bids among Democrats, said, “I am opposed to and will fight against any attempts to push through changes to the Senate health insurance reform legislation by using budget reconciliation tactics that would allow the Senate to pass a package of changes to our original bill with 51 votes.”

Mr. Bayh said, “It would destroy the opportunity, if there is one, for any bipartisan cooperation the rest of this year on anything else.”

And even if Democrats could agree on using reconciliation to adjust the health care bill, the House and Senate have yet to resolve what the adjustments would be. Major policy differences remain between the House and Senate measures, including a dispute over a proposed tax on high-cost insurance policies, and provisions related to insurance coverage of abortions.

Senator Sherrod Brown, Democrat of Ohio, said he favored a two-step process, under which the House would pass the Senate bill and Congress would then revise it using the fast-track budget procedures. Republicans adamantly oppose that approach.

Senator Joseph I. Lieberman, independent of Connecticut, urged caution. “The White House and Democratic leaders should reach out one more time to Republicans to see if they can find a common ground,” Mr. Lieberman said.

Senator Dianne Feinstein, Democrat of California, said Democratic leaders were assessing their options on health care.

“It's a timeout,” Mrs. Feinstein said. “The leadership is re-evaluating. They asked us to keep our powder dry.” Mrs. Feinstein said Congressional leaders should simplify the gigantic health care bill and try to pass parts of it that would be understandable to the public. But she also acknowledged that the odds were long for a far-reaching measure.

“I think big, comprehensive bills are very difficult to do in this environment,” she said.

The Senate Republican leader, Mitch McConnell of Kentucky, said White House comments on health care suggested that President Obama was not listening to the American people.

In Elyria, Ohio, on Friday, Mr. Obama said he was not going to “walk away” from the fight for major health legislation. If the bill becomes law, White House officials said, Americans will see its benefits and will embrace it.

But Mr. McConnell said, “This a clear sign that the administration has not gotten the message, that it's become too attached to its own pet goals, that it's stuck in neutral when the American people are asking it to change direction.”

The Republican leader said Mr. Obama should “put the 2,700-page Democrat health care plan on the shelf” and “move toward the kind of step-by-step approach Americans really want.” Republicans, however, have not come forward with any new proposals [That is a plainly false allegation -- see Patients Choice Act of 2009, Health Care Freedom Plan, and Empowering Patients First Act, for starters. -AMPP Ed.] and Mr. McConnell has said he hopes the health care bill is now dead.

from the Wall Street Journal, 2010-Jan-27, by Daniel Henninger:

Why ObamaCare Isn't Flying
It was foolish of President Obama to think he could reform 16% of the nation's economy.

This is the sound of President Obama's health-care reform bill crashing to earth:

Senate Majority Leader Harry Reid on Tuesday: "We're not on health care now. We talked a lot about it in the past."

Democratic Sen. Dianne Feinstein: "It's a time out."

The bill's advocates can't believe this is happening. They elected a popular and charismatic Democratic president. With him came a filibuster-proof congressional majority. Done deal. Write the bill, vote it into everlasting life, and burn votive candles to Franklin Roosevelt's unfinished national entitlement legacy.

After seven nonstop months ObamaCare is failing, just as ClintonCare failed after a year's effort in 1994. It's clear there is something inherently wrong in what the Democrats have been trying to do here. What is it? Podcast: Listen to the audio of Daniel Henninger's column here.

The answer lies in the often-repeated phrase that they are trying to reform "16% of the American economy." Why would anyone think it possible in 2010—as politics, economics or mere practical feasibility—to reorder 16% of a $14 trillion economy of 300 million people living in 50 separate states whose geography is 16 times larger than France?

The Obama reformers are driven by the idea that their bill would fulfill a dream running back 70 years to 1939, when FDR failed to win passage of a universal health-care bill.

But this isn't 1939. It's not even 1994. American health care, whatever its defects, is today unimaginably complex. What the Democrats are trying to do isn't just difficult. It's impossible.

According to data compiled by Hoover's business research from the U.S. Census, the health-care industry consists of 340,650 separate establishments employing 5,508,926 people. I leave it to a mathematician to calculate the number of possible economic relationships this would produce every day, much less annually .

We have 512,000 physicians and surgeons, 2.2 million registered nurses and a galaxy of different jobs orbiting around them. Some 36% of these are in individual physicians' offices.

One of the jewels of this collection of professionals, which the politicians say is "failing" us, is the U.S. medical-device industry. It has come a long way since the days of "The Clinic of Dr. Gross" in Thomas Eakins's famous painting.

There are 8,616 separate medical-device companies in the U.S., employing 359,065 people. Within the device industry, its two largest categories are electronic and precision equipment and surgical appliances. These are the wizards of American medicine.

The president says the special interests oppose his bill. But to pay for the bill, Congress would levy a $2 billion annual tax on the medical-device industry, which ardently opposes the legislation.

Let's pick a state. How about suddenly famous Massachusetts. The Massachusetts Medical Device Industry Council lists more than 220 companies as primary members. They have weird names like Aeris, ExtruMed, Bioxcell and WunderThink. Yet the Democrats are agog that Massachusetts voted Scott Brown into the Senate.

Harvard Medical School Dean Jeffrey Flier said of the health-care bill in these pages recently that "our capacity to innovate and develop new therapies would suffer most of all." And that's the high-minded criticism of the bill. Down at the level of simple retail politics what you see are tens of thousands of separate health and medical interests that understandably are in motion because of this bill's determination to change everything in American health care.

The president and his health-care advisers are giving philosopher kings a bad name. Only people who have reduced American health care to rows and columns of data in academic studies would think it possible to remake this incredibly sophisticated organism as easily as rebooting a spreadsheet.

You can't do it.

Meanwhile, press reports this week also noted that Mr. Obama's "comprehensive climate bill" is being down-sized to something that can pass Congress. Same problem.

Barack Obama is 48 years old, a "young" president. But in a sense, he is an old 48-year-old. The House leadership, the committee chairmen leading his agenda, are old guys from the 1960s and '70s. The so-called progressive Democrats who make up his core base are essentially a labor movement stuck in a one-size-fits everything industrial model from the 1930s.

It is a revealing irony that the other big story this week is the phenomenal steady success of Apple's iPhone, the result of a basic platform opening itself to a zillion application companies. Probably 90% of those tiny app firms voted for Barack Obama, whose idea of how the world actually works could not be less like their own.

Senate Minority Leader Mitch McConnell's suggestion that Mr. Obama start over is better advice than he knows. Refashioning America's terrific health-care industry from basic platforms might even be exciting. That won't happen. The Democrats will ride their, and Mr. Obama's, 70-year-old national-entitlement dream straight to November, and over the cliff.

from the Wall Street Journal, 2010-Jan-21, by Mortimer Zuckerman:

The Great Recession Continues
Americans haven't been fooled by the Dow's rise. What they see ahead are more taxes.

The December jobs report has doused the hope that we were at the beginning of a sustained economic recovery.

The unemployment rate managed to hold at 10% in December only because of an extraordinary shrinkage in the labor force: Some 661,000 gave up looking for a job.

Bureau of Labor Statistics' (BLS) nonfarm payroll data indicate that December job losses totaled 85,000. But the bureau's household survey, a better and more comprehensive measure of both the unemployed and underemployed, indicated a loss of 589,000 jobs. Since the Great Recession began in 2007, some 8.6 million jobs have been lost, according to the bureau; and small businesses, the normal source for new jobs, are still shedding workers. Fewer than 10% added employees, while more than 20% cut back—and the cuts averaged nearly twice as many per firm as the hires at the expanding companies.

Unemployment, in short, has graduated from being a difficulty, a worry. It is now a catastrophe, with some 15.3 million Americans out of work, according to the BLS.

What about the future? The problem in the job market going forward is not so much layoffs in the private sector, which are abating, but a lack of hiring. The federal stimulus program is offset by a 2010 budget shortfall for state, city, county and school districts, which the Center on Budget and Policy Priorities recently estimated will be in the range of an astonishing $200 billion nationally. Since virtually all states and cities have to run balanced budgets, the result will be reduced services, layoffs and tax hikes.

The consequence is that the U.S. economy—for decades the greatest job creation machine in the world—is taking longer and longer to replace the jobs already lost. In the 1970s and 1980s, Jane Sasseen noted in a recent report in BusinessWeek, it took as little as one year from the end of a recession to add back the lost jobs. After the eight-month downturn ending in March of 1991, for example, jobs came back in 23 months. After the downturn from the dot-com bust in 2001, it took 31 months. This time it could take as many as five years or even more to recover all of the eight-plus million jobs lost since March 2007. That's because we would have to create an additional 1.7 million jobs annually beyond those for the 1.3 million new people who enter the work force every year.

Economists may see the recession as being over, but the man on the street does not. Roughly 60% of the public believes the recession still has a way to go, a NBC/Wall Street Journal poll reported last October. Even those who have not suffered know someone—a friend, a neighbor, a family member—who is being hurt. Two in three say the rally in the stock market has not changed their views.

There are sound reasons for this gloom. Consumers have learned a bitter lesson. They understand that increased consumption—private and public—will have to come from income and not borrowing, and income will have to come from employment.

Today, mainstream Americans are going on a financial diet amid deteriorating family finances. They know now that they cannot spend what they don't have, as the painful consequences of spending levels that were artificially pumped up by too much debt have hit home. The top 20% of the nation's households account for 40% of all spending, according to government data reported by Ylan Q. Mui in the Washington Post last September. But these households no longer trust their home equity or rising stock portfolios (up by almost $5 trillion this past year) as a basis for spending in lieu of saving. All they see ahead are taxes, taxes, taxes. So the dollars have not yet started to flow. This is the new normal.

What this means is that larger-than-typical head winds face two of the three normal engines of recovery: consumption and residential investment. Rather than pumping more cash into a fragile economy to make up this difference, the government will have to focus on its next big task: drawing up credible plans for bringing bloated budget deficits under control without triggering another downturn.

The prospect, therefore, is sluggish GDP growth; employment gains that are too slow to prevent further increases in the unemployment rate; and firms still very reluctant to hire vigorously.

How can we accelerate a substantial recovery in job growth that will generate additional labor income? There is no snap answer. But this is no argument for inertia.

We must have programs that create some degree of confidence that America can be rebuilt, and jobs can be created, especially since consumer spending will likely decline as a part of GDP for many years. The unemployed have to be supported. But it would be better if the financial support employed labor in rational, long-term, major infrastructure projects, processed by a newly created National Infrastructure Bank.

These wouldn't be entitlement programs, but regeneration programs. Government spending on infrastructure projects—broadband Internet access across the nation, restoring decaying bridges and canals, building high-speed railways, modern airports, sewage plants, ports—has a high multiplier effect for adding jobs to the economy. And we will be fulfilling a desperate national need.

A second avenue for increasing employment would be to enhance technology, the area of our greatest strength. We are depriving ourselves of productive talent by a fearful attitude toward immigration. We make it hard for bright people to come and we make it hard for them to stay, so once they have graduated from our universities they go home to work for our competitors. This is not the way to run a railroad.

Foreign students are a significant proportion of those with graduate degrees in the hard sciences in American universities. We should restore the quotas for H-1B visas to 195,000 annually (where it was in the early 2000s) from 65,000, where it is now.

This increase has been blocked by shortsighted special-interest groups that fear jobs will be taken from Americans. On the contrary. The kind of people we should be striving to keep are those whose work in technology and engineering provides more than their share of new jobs.

Technology and innovation have long given us our greatest job growth. Just think: In 1800, about three-quarters of the U.S. labor force was devoted to agriculture. Today, it is less than 3%. Manufacturing employed one-third of the work force at the end of World War II. Today, it is down to about one-tenth. Americans are accustomed to economic transformation.

We must follow rational economic policies in the interest of the nation and not in the interest of narrow parochial groups who lobby legislators. Otherwise, as illustrated by the sorry journey of health-care legislation, we will see more of the politics of corruption.

Mr. Zuckerman is chairman and editor in chief of U.S. News & World Report.

from the Wall Street Journal, 2010-Jan-20:

The Great D.C. Migration
Americans move to where your money is.

Every day thousands of Americans vote with their feet on the best places to live and work, and these migration patterns can tell a lot about state economies—and economic policies. United Van Lines has released its annual report for 2009, based on those the moving company has relocated across one state line to another, and the winner is . . .

But first the biggest loser, which was Michigan for the fourth year in a row. More than two families left the state for every family that moved in. The fall of GM and Chrysler has obviously hurt. But two-term Governor Jennifer Granholm has also made her state the test case for the policy mix of raising taxes on higher incomes, increasing regulation, and steering taxpayer money at favored programs like job retraining and renewable energy. It hasn't worked for Michigan, even with the auto bailouts.

Ms. Granholm continues to be a regular economic policy adviser to the White House. Yikes.

The next two biggest net losers were Illinois and New Jersey, while California and New York also continued to have far more departures than arrivals.

Ten states gained net arrivals: Oregon, Arkansas, Nevada, Wyoming, Idaho, Colorado, Georgia, New Mexico, Texas and North Carolina. Of those, only Oregon sways decidedly to the political left and it has benefited from the economic refugees fleeing California.

Six of the eight states with no income tax were magnets for families, while eight of the 10 highest income tax states had more people packing. Democrats in state capitals and Washington have convinced themselves that "soak the rich" tax policies can help balance budgets, but the main effect seems to be to stimulate bon voyage parties.

As for the biggest winner, well, our readers won't be surprised to learn that it was Washington, D.C. by a large margin. United Van Lines moved nearly seven families to the federal city last year for every three it moved out. As always when the feds gear up the income redistribution machine, the imperial city and its denizens get a big cut of the action.

As in ancient Rome, the provinces are being required to send tribute to subsidize those living in the capital, which produces few services save transfer payments. No wonder the provincials are starting to rebel—even in Massachusetts.

from the Wall Street Journal, 2010-Jan-20:

Michael Mann's Climate Stimulus
A case study in one job 'saved.'

As for stimulus jobs—whether "saved" or "created"—we thought readers might be interested to know whose employment they are sustaining. More than $2.4 million is stimulating the career of none other than Penn State climate scientist Michael Mann.

Mr. Mann is the creator of the famous hockey stick graph, which purported to show some 900 years of minor temperature fluctuations, followed by a spike in temperatures over the past century. His work, which became a short-term sensation when seized upon by Al Gore, was later discredited. Mr. Mann made the climate spotlight again last year as a central player in the emails from the University of East Anglia's Climatic Research Unit, which showed climatologists massaging data, squelching opposing views, and hiding their work from the public.

Mr. Mann came by his grants via the National Science Foundation, which received $3 billion in stimulus money. Last June, the foundation approved a $541,184 grant to fund work "Toward Improved Projections of the Climate Response to Anthropogenic Forcing," which will contribute "to the understanding of abrupt climate change." Principal investigator? Michael Mann.

He received another grant worth nearly $1.9 million to investigate the role of "environmental temperature on the transmission of vector-borne diseases." Mr. Mann is listed as a "co-principal investigator" on that project. Both grants say they were "funded under the American Recovery and Reinvestment Act of 2009."

The NSF made these awards prior to last year's climate email scandal, but a member of its Office of Legislative and Public Affairs told us she was "unaware of any discussion regarding suspending or changing the awards made to Michael Mann." So your tax dollars will continue to fund a climate scientist whose main contribution to the field has been to discredit climate science.

from the Wall Street Journal, 2010-Jan-16:

Labor's $60 Billion Payoff
A health tax that hits everyone except the Democratic base.

Democrats seem impervious to embarrassment as they buy votes for ObamaCare, but their latest move makes even Nebraska's Ben Nelson look cheap: The 87% of Americans who don't belong to a union will now foot the bill for a $60 billion giveaway to those who do.

The Senate bill was financed in part by a 40% excise tax on high-cost insurance coverage. The White House backs this "Cadillac tax" as one of the few remaining cost-control tokens. But Big Labor abhors the tax because union benefits tend to be far more generous than average, and labor leaders and House Democrats have been throwing a political tantrum for weeks.

So emerging from their backrooms, Democrats have agreed to extend a special exemption from the Cadillac tax to any health plan that is part of a collective-bargaining agreement, plus state and local workers, many of whom are unionized. Everyone else with a higher-end plan will start to be taxed in 2013, but union members will get a free pass until 2018.

Ponder that one for a moment. Two workers who are identical in every respect—wages, job, health plan—will be treated differently by the tax system, based solely on union membership.

Richard Trumka of the AFL-CIO says this and other concessions mean the excise tax will raise some $60 billion less than the original Senate version. Democrats are probably going to charge investors for this political perk, by extending the 2.9% Medicare payroll tax to capital gains for the first time ever—on top of all the other taxes. Just what the economic recovery needs.

Meanwhile, the extra five-year dispensation gives labor lobbyists plenty of time to negotiate a permanent extension for the Democratic union base, even as labor is being armed with an important new organizational tool: Eliminating the secret ballot in union elections might be unnecessary when unions have an exclusive tax privilege at their political disposal. Right-to-work states will also be punished because they are less unionized.

The payoff shows that no one is doing a better job of rebutting the White House's technocratic cost-control claims than its own party. How exactly is the excise tax going to drive down premiums when a good part of the most expensive plans is exempted? The new union deal follows a similar one with Harry Reid that exempted the 17 states in which health costs are highest, plus longshoremen, construction workers, some farmers and sundry other liberal allies.

Amid the Beltway panic over Tuesday's special Senate election in Massachusetts and deepening public revulsion about sweetheart deals like Mr. Nelson's "Cornhusker kickback," it's more than a little surprising that the White House would be so tone-deaf to even contemplate a demand that is so contrary to basic fairness. But somehow Democrats have convinced themselves that the only tourniquet that will stop the political bleeding is to pass a bill that even President Obama admitted on Thursday is deeply unpopular.

Democrats wouldn't have to pay these partisan bribes had they chosen to write a less radical bill that could attract Republican votes. But then they would have had to pass something other than this destructive and unaffordable exercise in entitlement politics.

from the Wall Street Journal's Political Diary, 2010-Jan-13, by Stephen Moore:

More ObamaCare Hocus Pocus

Another ObamaCare promise is withering away in the sunlight. The president famously vowed that his bill would not add "one dime to the budget deficit." This fiction has so far been achieved with budget blue smoke and mirrors, such as moving $200 billion in Medicare physician reimbursement off-budget.

But now GOP Senator Jeff Sessions of Alabama has discovered new evidence of fiscal fraud. The bill passed by the Senate double-counts the "savings" from certain Medicare reforms by using the same funds to extend the solvency of Medicare by nine years while simultaneously using the funds to offset the cost of Mr. Obama's health insurance reform bill. Not only has Mr. Sessions obtained a letter from the federal Medicare agency confirming his assessment, but a report from the Democrat-controlled Congressional Budget Office also underlines the fuzzy math in the health bill: "The savings . . . would be received by the government only once, so they cannot be set aside to pay for future Medicare spending and, at the same time, pay for current spending on other parts of the legislation or on other programs."

CBO's conclusion puts the matter starkly: "To describe the full amount . . . as both improving the government's ability to pay future Medicare benefits and financing new spending outside of Medicare would essentially double-count a large share of those savings and thus overstate the improvement of the government's fiscal position."

This double-counting fraud belies the claim that ObamaCare will not increase the federal debt -- a prediction even more under assault now as the administration's union allies try to erase the bill's tax on their high-cost health plans and as governors insist on getting the same Medicaid deal that Senator Ben Nelson won for Nebraska, which could add $30 billion to $50 billion to the cost of the program.

"For those senators who have made deficit neutrality a condition of their support for the health care bill," says Mr. Sessions, "the message is clear: You should rethink your position on this bill."

from National Review's Critical Condition blog, 2010-Jan-13, by James C. Capretta:

Doubling Down on the Double Count

Just after the new year, the Obama administration and its congressional allies tried to convince the press that passage of a health-care bill should be relatively easy and quick, because the House- and Senate-passed versions have so much in common.

Oh, really? You wouldn't know it by listening to House liberals this week.

They are up in arms over talk that they will have no choice but to swallow hard and accept something very close to the Senate-passed bill. Their list of grievances with the handiwork of the upper chamber is rather long. For starters, they still haven't gotten over the fact that Senate Democrats endorsed an “individual mandate” with no government-run option for people to choose. If that position prevails, House Democrats are facing the prospect of voting for legislation that would force Americans to buy coverage from the despised private insurance industry. It's going to take many Democrats some time to work through the grief associated with that reality before they reach acceptance.

Then there is the president's endorsement of the so-called “Cadillac tax” in the Senate bill. That's the 40 percent excise tax that would apply to insurance plans with premiums exceeding $23,000 for family coverage. It turns out that the most expensive health-insurance plans in the United States are often provided to unionized workers. So, with this one idea, the president can kill two campaign promises with one flip-flop. He would be “taxing health benefits for the first time in history” — something he condemned John McCain for endorsing in 2008 — and he would impose hefty new taxes on the middle class. Even House Speaker Nancy Pelosi seems taken aback by this presidential display of audacity.

But House liberals have other complaints too. They also don't like the independent Medicare commission that could make an end run around Congress to impose cuts in the program without further action in the House or Senate. Or the Senate's employer mandate that penalizes firms only if their low-wage workers end up with subsidized coverage, thus discouraging the hiring of the very people who most need a job. Or the modest nod toward federalism in the Senate bill's delegation of exchange administration to the states. It's going to take time to work through these issues, all of which have the potential to disrupt the fragile coalitions assembled in the House and Senate to pass the original bills.

Indeed, for many of these items, it's not clear that a simple “split the difference” formula will work to keep enough Democrats on board for final passage. Which is why entirely new ideas are now being floated — ideas that weren't even considered during the year-long debate of 2009.

The latest is the proposal to impose Medicare payroll taxes on non-wage income, such as investment returns. This has been mentioned as a way to ease up on the Cadillac tax without resorting to the income-tax surtax in the House-passed bill. Of course, this is terrible policy for a whole host of reasons. It would penalize private-sector investing — putting up one more stumbling block to robust growth and job creation. And it would break the historic link between wage income and social insurance that has been a central pillar of Social Security and Medicare from the beginning.

But what's most stunning about this latest idea is that it completely disregards the warning the Congressional Budget Office (CBO) issued regarding the Medicare provisions just before Christmas. In that better-late-than-never analysis, CBO made the point that Medicare spending and revenue provisions can't be counted twice. They can be used either to improve the capacity of the government to pay future Medicare benefits, or to finance a new entitlement program. But the same money can't be counted twice.

But with this latest idea, the Democrats have made it clear that they don't care what CBO or anybody else says at this point, they plan to keep counting the money twice. If this new Medicare payroll tax on investment income were to pass, Congressional Democrats would double-count the revenue just as they are double-counting the Medicare spending cuts — saying they help improve Medicare solvency even as they also pay for the runaway entitlement spending in Obamacare.

It's been clear for some time that the White House will say and do anything to get a bill, which is why the process of producing this legislation has been become so ugly and distasteful to the public. Unfortunately, it's only going to get worse in coming days as desperate Democrats pull out all the stops to pass a government takeover of American health care.

from the Washington Examiner, 2010-Jan-6:

Dems iron out Obamacare in secret

Writing in The Federalist Papers during the debates on adoption of the U.S. Constitution in 1787, Alexander Hamilton confidently proclaimed that "two thirds of the people of America could not long be persuaded, upon the credit of artificial distinctions and syllogistic subtleties, to submit their interests to the management and disposal of one third."

Well, Mr. Hamilton, meet Mr. Reid and Ms. Pelosi: The Senate majority leader and House speaker, respectively, are attempting, in a display of political arrogance unmatched in this nation's history, to do almost exactly what Hamilton said Americans would never tolerate. They are inventing "artificial distinctions and syllogistic subtleties" of legislative procedure in order to force passage of a proposal favored by a minority and opposed by a large majority of the people.

The proposal in question, of course, is Obamacare, the government-run health care system that will interpose federal bureaucrats between patients and doctors, while putting one-sixth of the national economy under the thumb of Washington politicians. According to Rasmussen Reports' weekly surveys of likely voters, opposition to Obamacare during the past year has ranged from 52 percent to as much as 58 percent of respondents, with support bouncing around 38 percent to 42 percent.

If not quite precisely the same as Hamilton's 66 percent to 33 percent equation, Rasmussen's numbers are in the same ballpark, especially considering the intensity of opposing views. Fully 81 percent of Republicans oppose Obamacare, while 73 percent of Democrats favor it. Significantly, 50 percent of independents oppose Obamacare and 31 percent favor it.

Reid and Pelosi are meeting privately with each other and with President Obama to work out differences between their respective chambers' versions of Obamacare. They are thus ignoring the long-standing requirement that a bipartisan conference committee with representatives from the Senate and House meet in public to iron out such differences, and that on-the-record votes be taken in both chambers on final passage of the committee's report. Once Reid and Pelosi agree on a final bill, they presumably will conduct a pro forma conference vote to rubber-stamp their agreement.

Obama, Reid and Pelosi fear the traditional conference committee process will encourage yet more Americans to decide they don't want either proposal. All three have forgotten Obama's promise of more than a year ago that "we'll have the negotiations televised on C-SPAN, so that people can see who is making arguments on behalf of their constituents." C-SPAN's Brian Lamb said just last week that his network "will commit the necessary resources" to cover "the critical stage of reconciliation between the chambers." Unfortunately, it appears that the more critical the stage, the more likely Obama, Reid and Pelosi are to go behind closed doors.

from Bloomberg, 2009-Dec-31, by David Olmos:

Mayo Clinic in Arizona to Stop Treating Some Medicare Patients

San Francisco -- The Mayo Clinic, praised by President Barack Obama as a national model for efficient health care, will stop accepting Medicare patients as of tomorrow at one of its primary-care clinics in Arizona, saying the U.S. government pays too little.

More than 3,000 patients eligible for Medicare, the government's largest health-insurance program, will be forced to pay cash if they want to continue seeing their doctors at a Mayo family clinic in Glendale, northwest of Phoenix, said Michael Yardley, a Mayo spokesman. The decision, which Yardley called a two-year pilot project, won't affect other Mayo facilities in Arizona, Florida and Minnesota.

Obama in June cited the nonprofit Rochester, Minnesota-based Mayo Clinic and the Cleveland Clinic in Ohio for offering “the highest quality care at costs well below the national norm.” Mayo's move to drop Medicare patients may be copied by family doctors, some of whom have stopped accepting new patients from the program, said Lori Heim, president of the American Academy of Family Physicians, in a telephone interview yesterday.

“Many physicians have said, `I simply cannot afford to keep taking care of Medicare patients,'” said Heim, a family doctor who practices in Laurinburg, North Carolina. “If you truly know your business costs and you are losing money, it doesn't make sense to do more of it.”

Medicare Loss

The Mayo organization had 3,700 staff physicians and scientists and treated 526,000 patients in 2008. It lost $840 million last year on Medicare, the government's health program for the disabled and those 65 and older, Mayo spokeswoman Lynn Closway said.

Mayo's hospital and four clinics in Arizona, including the Glendale facility, lost $120 million on Medicare patients last year, Yardley said. The program's payments cover about 50 percent of the cost of treating elderly primary-care patients at the Glendale clinic, he said.

“We firmly believe that Medicare needs to be reformed,” Yardley said in a Dec. 23 e-mail. “It has been true for many years that Medicare payments no longer reflect the increasing cost of providing services for patients.”

Mayo will assess the financial effect of the decision in Glendale to drop Medicare patients “to see if it could have implications beyond Arizona,” he said.

Nationwide, doctors made about 20 percent less for treating Medicare patients than they did caring for privately insured patients in 2007, a payment gap that has remained stable during the last decade, according to a March report by the Medicare Payment Advisory Commission, a panel that advises Congress on Medicare issues. Congress last week postponed for two months a 21.5 percent cut in Medicare reimbursements for doctors.

National Participation

Medicare covered an estimated 45 million Americans at the end of 2008, according to the Centers for Medicare & Medicaid Services, the agency in charge of the programs. While 92 percent of U.S. family doctors participate in Medicare, only 73 percent of those are accepting new patients under the program, said Heim of the national physicians' group, citing surveys by the Leawood, Kansas-based organization.

Greater access to primary care is a goal of the broad overhaul supported by Obama that would provide health insurance to about 31 million more Americans. More family doctors are needed to help reduce medical costs by encouraging prevention and early treatment, Obama said in a June 15 speech to the American Medical Association meeting in Chicago.

Reid Cherlin, a White House spokesman for health care, declined comment on Mayo's decision to drop Medicare primary care patients at its Glendale clinic.

Medicare Costs

Mayo's Medicare losses in Arizona may be worse than typical for doctors across the U.S., Heim said. Physician costs vary depending on business expenses such as office rent and payroll. “It is very common that we hear that Medicare is below costs or barely covering costs,” Heim said.

Mayo will continue to accept Medicare as payment for laboratory services and specialist care such as cardiology and neurology, Yardley said.

Robert Berenson, a fellow at the Urban Institute's Health Policy Center in Washington, D.C., said physicians' claims of inadequate reimbursement are overstated. Rather, the program faces a lack of medical providers because not enough new doctors are becoming family doctors, internists and pediatricians who oversee patients' primary care.

“Some primary care doctors don't have to see Medicare patients because there is an unlimited demand for their services,” Berenson said. When patients with private insurance can be treated at 50 percent to 100 percent higher fees, “then Medicare does indeed look like a poor payer,” he said.

Annual Costs

A Medicare patient who chooses to stay at Mayo's Glendale clinic will pay about $1,500 a year for an annual physical and three other doctor visits, according to an October letter from the facility. Each patient also will be assessed a $250 annual administrative fee, according to the letter. Medicare patients at the Glendale clinic won't be allowed to switch to a primary care doctor at another Mayo facility.

A few hundred of the clinic's Medicare patients have decided to pay cash to continue seeing their primary care doctors, Yardley said. Mayo is helping other patients find new physicians who will accept Medicare.

“We've had many patients call us and express their unhappiness,” he said. “It's not been a pleasant experience.”

Mayo's decision may herald similar moves by other Phoenix- area doctors who cite inadequate Medicare fees as a reason to curtail treatment of the elderly, said John Rivers, chief executive of the Phoenix-based Arizona Hospital and Healthcare Association.

“We've got doctors who are saying we are not going to deal with Medicare patients in the hospital” because they consider the fees too low, Rivers said. “Or they are saying we are not going to take new ones in our practice.”

from the Wall Street Journal, 2010-Jan-7, by Mark B. Constantian:

Where U.S. Health Care Ranks Number One
Isn't 'responsiveness' what medicine is all about?

Last August the cover of Time pictured President Obama in white coat and stethoscope. The story opened: "The U.S. spends more to get less [health care] than just about every other industrialized country." This trope has dominated media coverage of health-care reform. Yet a majority of Americans opposes Congress's health-care bills. Why?

The comparative ranking system that most critics cite comes from the U.N.'s World Health Organization (WHO). The ranking most often quoted is Overall Performance, where the U.S. is rated No. 37. The Overall Performance Index, however, is adjusted to reflect how well WHO officials believe that a country could have done in relation to its resources.

The scale is heavily subjective: The WHO believes that we could have done better because we do not have universal coverage. What apparently does not matter is that our population has universal access because most physicians treat indigent patients without charge and accept Medicare and Medicaid payments, which do not even cover overhead expenses. The WHO does rank the U.S. No. 1 of 191 countries for "responsiveness to the needs and choices of the individual patient." Isn't responsiveness what health care is all about?

Data assembled by Dr. Ronald Wenger and published recently in the Bulletin of the American College of Surgeons indicates that cardiac deaths in the U.S. have fallen by two-thirds over the past 50 years. Polio has been virtually eradicated. Childhood leukemia has a high cure rate. Eight of the top 10 medical advances in the past 20 years were developed or had roots in the U.S.

The Nobel Prizes in medicine and physiology have been awarded to more Americans than to researchers in all other countries combined. Eight of the 10 top-selling drugs in the world were developed by U.S. companies. The U.S. has some of the highest breast, colon and prostate cancer survival rates in the world. And our country ranks first or second in the world in kidney transplants, liver transplants, heart transplants, total knee replacements, coronary artery bypass, and percutaneous coronary interventions.

We have the shortest waiting time for nonemergency surgery in the world; England has one of the longest. In Canada, a country of 35 million citizens, 1 million patients now wait for surgery and another million wait to see specialists.

When my friend, cardiac surgeon Peter Alivizatos, returned to Greece after 10 years heading the heart transplantation program at Baylor University in Dallas, the one-year heart transplant survival rate there was 50%—five-year survival was only 35%. He soon increased those numbers to 94% one-year and 90% five-year survival, which is what we achieve in the U.S. So the next time you hear that the U.S. is No. 37, remember that Greece is No. 14. Cuba, by the way, is No. 39.

But the issue is only partly about quality. As we have all heard, the U.S. spends a higher percentage of its gross domestic product for health care than any other country.

Actually, health-care spending now increases more moderately than it has in previous decades. Food, energy, housing and health care consume the same share of American spending today (55%) that they did in 1960 (53%).

So what does this money buy? Certainly some goes to inefficiencies, corporate profits, and costs that should be lowered by professional liability reform and national, free-market insurance access by allowing for competition across state lines. But the majority goes to a long list of advantages that American citizens now expect: the easiest access, the shortest waiting times the widest choice of physicians and hospitals, and constant availability of health care to elderly Americans. What we need now is insurance and liability reform—not health-care reform.

Who determines how much a nation should pay for its health? Is 17% too much, or too little? What better way could there be to dedicate our national resources than toward the health and productivity of our citizens?

Perhaps it's not that America spends too much on health care, but that other nations don't spend enough.

Dr. Constantian is a plastic and reconstructive surgeon in New Hampshire.

from the Wall Street Journal, 2010-Jan-12:

$222 Billion, Ho Hum
Another warning that reform 'bends the cost curve'—up.

Among the astonishing things about the ObamaCare debate—or lack thereof—is that Washington is inundated with warnings about the destructiveness of this plan, and it doesn't matter. The agency that runs Medicare rung the latest alarm bell on Friday, and good luck finding any media mention.

Richard Foster, the chief actuary for the Centers for Medicare and Medicaid Services, reports that under his analysis national health spending will rise under the bills by $222 billion over the next 10 years. In other words, ObamaCare really does "bend the cost curve"—up.

Even that estimate exists only on paper, as Mr. Foster has the honesty to admit. Because "most of the coverage provisions would be in effect for only six of the 10 years of the budget period, the cost estimates shown in this memorandum do not represent a full 10-year cost for the proposed legislation," he writes. The report is punctuated by phrases like "unrealistic" and "doubtful," and Mr. Foster adds that "the scope and magnitude of these changes are such that few precedents exist for use in estimation."

That $222 billion is a net figure, even after accounting for the fact that most of the newly insured—18 million people—will be dumped into Medicaid, "where provider payment rates are well below average." And for the fact that ObamaCare is "paid for" only in the sense that Medicare's payments to doctors are assumed in the bill to be cut by more than 20% this spring and even deeper after that, which will never happen in practice.

Mr. Foster adds that other planned Medicare cuts would damage doctors and hospitals: "Over time, a sustained reduction in payment updates, based on productivity expectations that are difficult to attain, would cause Medicare payment rates to grow more slowly than, and in a way that was unrelated to, the providers' costs of furnishing services to beneficiaries." This is how price controls would work in practice, even as Medicare has hit its spending targets only four times in the last 25 years.

He says many providers will be forced to stop accepting patients who are insured by the government, as opposed to those who have private coverage "with relatively attractive payment rates." The resulting two-tier health-care system "should be considered plausible and even probable initially." As for the White House's promise that it will reduce health spending painlessly by cutting "waste," Mr. Foster isn't buying it. He writes that "we find the language as it now reads is not sufficiently specific to provide estimates."

The report also calls out the new entitlement program for long-term care, which is included only because it will start collecting premiums five years before it starts paying benefits. In return for this accounting gimmick, the fisc will be saddled with a program that Mr. Foster estimates will be bankrupt by 2025. It may be sooner than that, however, as the program will tend to attract sicker people, presenting the possibility of "a significant risk of failure as a result of adverse selection by participants."

Studies like Mr. Foster's have been coming left and right but they do nothing to stop the political march off the cliff. Welfare reform would never have had a chance if even a single analysis like this one had come out before the vote. But somehow Democrats get a pass from the press corps and political class because—why?

from the Weekly Standard, 2010-Jan-4, by James C. Capretta and Yuval Levin:

A Fine Mess
The substance of the Reid bill is as bad as the process that produced it.

In the Democrats' rush to pass some kind of health care legislation before public opposition overwhelms them, tactics have long since overtaken substance. Their only remaining goal is to pass a bill, any bill. As the endgame has unfolded, all eyes have been fixed on the unseemly process taking place in the halls of Congress: backroom legislating with rushed votes to minimize scrutiny and public review; secret deals with deep-pocket industries; outright and outlandish vote buying using taxpayer funds; procedural maneuvers to shut off debate and prevent meaningful amendments.

The process has been ugly--so ugly that it has distracted both voters and legislators from the product being cobbled together, which if anything is even worse than assumed. A look at the bill itself--at what exactly will be unleashed on the country if this legislation becomes the law of the land--reveals an appalling disaster in the making, for its own sponsors no less than for the rest of the country.

The litany of conservative concerns is familiar by now, and the latest version of the bill contains the full parade of horribles: massive tax increases in bad economic times, new mandates on employers that will depress hiring, fewer options for families buying insurance, new layers of bureaucracy between doctors and patients, upward pressure on premium costs, and a failure to address the causes of exploding health care costs more generally. But this latest iteration of Obamacare is a nightmare not only for conservatives. The fine details don't look much better from the left.

The mix of insurance regulation and subsidies at the center of the various versions of the Democrats' health care bills until this most recent iteration was designed to channel Americans toward a government insurance program of one sort or another. The idea was to end risk-based insurance by making it essentially illegal for insurers to charge people different prices based on their health, age, or preexisting conditions; to force everyone to participate in the system so that the healthy do not wait until they're sick to buy insurance under the new rules; and then to introduce a government-run insurer that, whether through Medicare's negotiating leverage or through various exemptions from market pressures, could undersell private insurers and so offer an attractive "option" to people being pushed out of employer plans into an increasingly expensive individual market.

The goal was to get a large swath of the public insured by the government, and so gradually create a socialized insurance system. Conservatives opposed this scheme because they believe a public insurer would not be able to introduce efficiencies that would lower prices. Liberals supported it because they think a public insurer would be more fair and more effective.

But in order to gain 60 votes in the Senate, the Democrats have now had to give up, for all practical purposes, on any version of that public insurer, while leaving the other components of their scheme in place. The result makes no sense whatsoever--not to conservatives, not to liberals, not to anyone. Rather than reform a system that everyone agrees is a failure, it will subsidize that system and compel participation in it--requiring all Americans to pay ever-growing premiums to private insurance companies, most of which are for-profit, while doing essentially nothing about the underlying causes of those rising costs. The thought that, after all of this, a Democratic Congress is going to force Americans to send their premiums to the despised insurance industry and then subsidize that industry to boot has sent the left into such a state of frenzied recriminations it could sink the whole enterprise yet.

And that is by no means the only problem for the left in this bill. The mad rush to pass something obscures a crucial component of the bill's design that could prove very problematic for Democrats. For all of President Obama's insistence that we must have action now, and all the talk by congressional Democrats about the terrible costs of delay, the key components of the Senate bill would actually not go into effect for four years. Essentially all of the spending provisions and insurance reforms--including the individual mandate to purchase health insurance, the employer mandate to provide it, the state insurance exchanges, the federal subsidies for coverage, and the Medicaid expansion--would only go into operation in 2014.

The reason for this, as for everything in this fine mess of a bill, is purely tactical: In order to get the Congressional Budget Office to score the cost of the bill below $900 billion over its first ten years (which was President Obama's arbitrary goal), the Democrats had to begin the spending provisions in the fifth year of the ten-year window, while tax collection and Medicare cuts would begin sooner. Some taxes and fees, like those on pharmaceutical companies, would start immediately under the bill. Others, like the surtaxes on medical devices and health insurers (which would result in higher premiums for employers and individuals buying coverage) would take effect in the course of 2010. And several major tax hikes, like the tax on particularly generous employer health plans, the increased Medicare payroll tax on high earners, and limits in allowable deductions for health care expenses, would begin in 2013.

This timeline of tax and spending implementation corresponds rather awkwardly to the political calendar confronting the Democrats. The new entitlement, insurance rules, and other elements of the plan will not go into effect until well after the 2010 congressional elections and even the next presidential election, but some serious tax hikes will take place by then.

Meanwhile, again to make for a palatable CBO score, the bill envisions radical cuts in Medicare beginning quite soon. For instance, steep cuts in Medicare Advantage start in 2011, which means millions of seniors will begin hearing the bad news in 2010 as their plans withdraw from the program, cut their benefits, or raise their premiums. In addition, the bill assumes other deep cuts in Medicare provider payment rates, including a massive reduction in physician fees scheduled for 2010. These are extremely unlikely actually to occur, as Congress has for decades proven incapable of sustaining serious cuts in Medicare.

But whether the cuts happen or not, they present a major political problem for Democrats in the short term--by the end of 2011, they will either have enacted massive and unpopular Medicare cuts (the proceeds of which will go to a new entitlement, rather than to fix Medicare itself), or they will have failed to enact them and shown the fiscal underpinnings of their health care agenda to have been a sham. Either way, the pain will come almost three years before benefits that might assuage voter concerns begin to flow.

None of this makes the bill any better for the right or the center. It only means that Obamacare has become an equal opportunity fiasco. The Reid bill, which will very likely be the blueprint for the final legislation before the House and Senate in the new year, is an exceptionally ill-designed and misbegotten mess--substantively, strategically, fiscally, and (for its sponsors) politically. About the only good news to be found in the fine print is that even if it passes it will not go into effect for four long years--leaving genuine reformers time to repeal it and start anew.

James C. Capretta is a fellow at the Ethics and Public Policy Center and a health policy consultant. Yuval Levin, also a fellow at EPPC, is the editor of National Affairs.

from the Wall Street Journal, 2009-Jan-9, by Stephen Moore:

'Atlas Shrugged': From Fiction to Fact in 52 Years

Some years ago when I worked at the libertarian Cato Institute, we used to label any new hire who had not yet read "Atlas Shrugged" a "virgin." Being conversant in Ayn Rand's classic novel about the economic carnage caused by big government run amok was practically a job requirement. If only "Atlas" were required reading for every member of Congress and political appointee in the Obama administration. I'm confident that we'd get out of the current financial mess a lot faster.

Many of us who know Rand's work have noticed that with each passing week, and with each successive bailout plan and economic-stimulus scheme out of Washington, our current politicians are committing the very acts of economic lunacy that "Atlas Shrugged" parodied in 1957, when this 1,000-page novel was first published and became an instant hit.

Rand, who had come to America from Soviet Russia with striking insights into totalitarianism and the destructiveness of socialism, was already a celebrity. The left, naturally, hated her. But as recently as 1991, a survey by the Library of Congress and the Book of the Month Club found that readers rated "Atlas" as the second-most influential book in their lives, behind only the Bible.

For the uninitiated, the moral of the story is simply this: Politicians invariably respond to crises -- that in most cases they themselves created -- by spawning new government programs, laws and regulations. These, in turn, generate more havoc and poverty, which inspires the politicians to create more programs . . . and the downward spiral repeats itself until the productive sectors of the economy collapse under the collective weight of taxes and other burdens imposed in the name of fairness, equality and do-goodism.

In the book, these relentless wealth redistributionists and their programs are disparaged as "the looters and their laws." Every new act of government futility and stupidity carries with it a benevolent-sounding title. These include the "Anti-Greed Act" to redistribute income (sounds like Charlie Rangel's promises soak-the-rich tax bill) and the "Equalization of Opportunity Act" to prevent people from starting more than one business (to give other people a chance). My personal favorite, the "Anti Dog-Eat-Dog Act," aims to restrict cut-throat competition between firms and thus slow the wave of business bankruptcies. Why didn't Hank Paulson think of that?

These acts and edicts sound farcical, yes, but no more so than the actual events in Washington, circa 2008. We already have been served up the $700 billion "Emergency Economic Stabilization Act" and the "Auto Industry Financing and Restructuring Act." Now that Barack Obama is in town, he will soon sign into law with great urgency the "American Recovery and Reinvestment Plan." This latest Hail Mary pass will increase the federal budget (which has already expanded by $1.5 trillion in eight years under George Bush) by an additional $1 trillion -- in roughly his first 100 days in office.

The current economic strategy is right out of "Atlas Shrugged": The more incompetent you are in business, the more handouts the politicians will bestow on you. That's the justification for the $2 trillion of subsidies doled out already to keep afloat distressed insurance companies, banks, Wall Street investment houses, and auto companies -- while standing next in line for their share of the booty are real-estate developers, the steel industry, chemical companies, airlines, ethanol producers, construction firms and even catfish farmers. With each successive bailout to "calm the markets," another trillion of national wealth is subsequently lost. Yet, as "Atlas" grimly foretold, we now treat the incompetent who wreck their companies as victims, while those resourceful business owners who manage to make a profit are portrayed as recipients of illegitimate "windfalls."

When Rand was writing in the 1950s, one of the pillars of American industrial might was the railroads. In her novel the railroad owner, Dagny Taggart, an enterprising industrialist, has a FedEx-like vision for expansion and first-rate service by rail. But she is continuously badgered, cajoled, taxed, ruled and regulated -- always in the public interest -- into bankruptcy. Sound far-fetched? On the day I sat down to write this ode to "Atlas," a Wall Street Journal headline blared: "Rail Shippers Ask Congress to Regulate Freight Prices."

In one chapter of the book, an entrepreneur invents a new miracle metal -- stronger but lighter than steel. The government immediately appropriates the invention in "the public good." The politicians demand that the metal inventor come to Washington and sign over ownership of his invention or lose everything.

The scene is eerily similar to an event late last year when six bank presidents were summoned by Treasury Secretary Hank Paulson to Washington, and then shuttled into a conference room and told, in effect, that they could not leave until they collectively signed a document handing over percentages of their future profits to the government. The Treasury folks insisted that this shakedown, too, was all in "the public interest."

Ultimately, "Atlas Shrugged" is a celebration of the entrepreneur, the risk taker and the cultivator of wealth through human intellect. Critics dismissed the novel as simple-minded, and even some of Rand's political admirers complained that she lacked compassion. Yet one pertinent warning resounds throughout the book: When profits and wealth and creativity are denigrated in society, they start to disappear -- leaving everyone the poorer.

One memorable moment in "Atlas" occurs near the very end, when the economy has been rendered comatose by all the great economic minds in Washington. Finally, and out of desperation, the politicians come to the heroic businessman John Galt (who has resisted their assault on capitalism) and beg him to help them get the economy back on track. The discussion sounds much like what would happen today:

Galt: "You want me to be Economic Dictator?"

Mr. Thompson: "Yes!"

"And you'll obey any order I give?"

"Implicitly!"

"Then start by abolishing all income taxes."

"Oh no!" screamed Mr. Thompson, leaping to his feet. "We couldn't do that . . . How would we pay government employees?"

"Fire your government employees."

"Oh, no!"

Abolishing the income tax. Now that really would be a genuine economic stimulus. But Mr. Obama and the Democrats in Washington want to do the opposite: to raise the income tax "for purposes of fairness" as Barack Obama puts it.

David Kelley, the president of the Atlas Society, which is dedicated to promoting Rand's ideas, explains that "the older the book gets, the more timely its message." He tells me that there are plans to make "Atlas Shrugged" into a major motion picture -- it is the only classic novel of recent decades that was never made into a movie. "We don't need to make a movie out of the book," Mr. Kelley jokes. "We are living it right now."

Mr. Moore is senior economics writer for The Wall Street Journal editorial page.

from the Wall Street Journal, 2009-Dec-3, by Heather Wilhelm:

Is Ayn Rand Bad for the Market?

Say what you will about Ayn Rand, but one thing is certain: She had no use for common niceties. A grimly precocious, friendless Rand declared her atheism at age 13. "Atlas Shrugged," Rand's secular sermon-as-novel, boils with revulsion toward the "looters" and "moochers" who consume public funds. Rand scornfully excommunicated followers who disagreed with her, and in 1964 she told Playboy that those who place friends and family first in life are "immoral" and "emotional parasites."

Shoddy manners aside, 52 years after the release of "Atlas Shrugged," Rand seems to be roaring back. Sales are surging—Brian Doherty, author of "Radicals for Capitalism" (2007), recently calculated that in one week in late August, "Atlas" sold "67 percent more copies than it did the same week a year before, and 114 percent more than that same week in 2007." Two buzzed-about Rand biographies hit the shelves this fall, and an "Atlas" cable miniseries is reportedly in the works. Designer Ralph Lauren recently listed Rand as one of his favorite novelists, and CNBC host Rick Santelli, whose on-air antibailout rant inspired hundreds of "tea party" protests across the nation, admitted the same. "I know this may not sound very humanitarian," he said, "but at the end of the day I'm an Ayn Rand-er."

To many, it doesn't sound humanitarian at all. To be an "Ayn Rand-er" sounds, as the New York Times recently put it, "angry" and "vulgar." In its review of the new Rand biographies, the New Republic bemoaned the "cacophony of rage and dread" surrounding Rand's acolytes. Even in Rand's heyday, many conservatives shrank from what they saw as her toxic blend of atheism, absolutism and ruthless individualism. "William F. Buckley must be spinning in his grave to hear all this chatter about Rand," says Jennifer Burns, the author of "Goddess of the Market: Ayn Rand and the American Right," "because it was a goal of his to make Rand an untouchable."

In this, apparently, Buckley failed. Despite her tendency to lose friends and alienate people, Rand's guru-status in today's free-market establishment, detailed in Mr. Doherty's book, is undeniable. "People who are in influential positions at leading free-market organizations were very likely influenced by her at one point," says Chip Mellor, head of the libertarian Institute for Justice. And, he notes, with the spike in government spending and wealth-redistribution programs, "the prescience of her writing has been brought home with a vengeance this year."

But in an age where hope, change and warm-hearted marketing clearly resonate, is revitalizing and glorifying Rand's acerbic "virtue of selfishness" doing the free-market movement any good? Doubts are starting to emerge. Leonard Liggio, a respected figure in libertarian circles and a guest at Rand's post-"Atlas Shrugged" New York get-togethers, sees value in Rand but admits she wasn't a bridge builder. "She used strong, confrontational language, forcing people to react," he says. "And maybe that's not the best way to educate people." Mr. Mellor agrees: "Is Rand's exact message the best for most audiences today? Probably not."

Others, however, go further. "Rand has this extremist, intolerant, dogmatic antigovernment stance," says Brink Lindsey of the libertarian Cato Institute, "and it pushes free-market supporters toward a purist, radical vision that undermines their capacity to get anything done." The Rev. Robert Sirico, head of the free-market Acton Institute, agrees. "If you want to offend, Rand accomplishes that. But if you want to convert—well, for instance, who could imagine Rand debating a health-care bill? I wouldn't want to take an order from her in a restaurant, let alone negotiate a political point."

Rand's tendency to enrage certain audiences could also be blocking a huge opportunity for proponents of small government. Cato's Mr. Lindsey, a proponent of what he calls "bleeding-heart libertarianism," notes that free markets are ultimately the best way to help the poor and disadvantaged. It is a familiar argument and a cogent one. Rand's insistence on the folly of altruism, however, tends to overshadow and even invalidate this message.

For her fans, Rand's appeal lies in her big-picture, unified, philosophical approach to man's purpose and the meaning of life. But ultimately ideas need more than size and a potboiler plot to overtake the dominant, big-government political paradigm. Rand held some insight on the nature of markets and has sold scads of books, but when it comes to shaping today's mainstream assumptions, she is a terrible marketer: elitist, cold and laser-focused on the supermen and superwomen of the world.

How are free markets best "sold"? A more compelling approach flips Rand's philosophy on its head, explaining how everyone, especially society's neediest, benefits from economic liberty. It's a compelling story about how freedom and prosperity can change lives for the better. And Ayn Rand is of little help in telling it.

Ms. Wilhelm is vice president of marketing and communications at the Illinois Policy Institute, a free-market public-policy organization.

from the Washington Post, 2009-Dec-11, by letters@charleskrauthammer.comCharles Krauthammer:

In the 1970s and early '80s, having seized control of the U.N. apparatus (by power of numbers), Third World countries decided to cash in. OPEC was pulling off the greatest wealth transfer from rich to poor in history. Why not them? So in grand U.N. declarations and conferences, they began calling for a "New International Economic Order." The NIEO's essential demand was simple: to transfer fantastic chunks of wealth from the industrialized West to the Third World.

On what grounds? In the name of equality -- wealth redistribution via global socialism -- with a dose of post-colonial reparations thrown in.

The idea of essentially taxing hardworking citizens of the democracies to fill the treasuries of Third World kleptocracies went nowhere, thanks mainly to Ronald Reagan and Margaret Thatcher (and the debt crisis of the early '80s). They put a stake through the enterprise.

But such dreams never die. The raid on the Western treasuries is on again, but today with a new rationale to fit current ideological fashion. With socialism dead, the gigantic heist is now proposed as a sacred service of the newest religion: environmentalism.

One of the major goals of the Copenhagen climate summit is another NIEO shakedown: the transfer of hundreds of billions from the industrial West to the Third World to save the planet by, for example, planting green industries in the tristes tropiques.

Politically it's an idea of genius, engaging at once every left-wing erogenous zone: rich man's guilt, post-colonial guilt, environmental guilt. But the idea of shaking down the industrial democracies in the name of the environment thrives not just in the refined internationalist precincts of Copenhagen. It thrives on the national scale, too.

On the day Copenhagen opened, the U.S. Environmental Protection Agency claimed jurisdiction over the regulation of carbon emissions by declaring them an "endangerment" to human health.

Since we operate an overwhelmingly carbon-based economy, the EPA will be regulating practically everything. No institution that emits more than 250 tons of CO2 a year will fall outside EPA control. This means more than a million building complexes, hospitals, plants, schools, businesses and similar enterprises. (The EPA proposes regulating emissions only above 25,000 tons, but it has no such authority.) Not since the creation of the Internal Revenue Service has a federal agency been given more intrusive power over every aspect of economic life.

This naked assertion of vast executive power in the name of the environment is the perfect fulfillment of the prediction of Czech President (and economist) Vaclav Klaus that environmentalism is becoming the new socialism, i.e., the totemic ideal in the name of which government seizes the commanding heights of the economy and society.

Socialism having failed so spectacularly, the left was adrift until it struck upon a brilliant gambit: metamorphosis from red to green. The cultural elites went straight from the memorial service for socialism to the altar of the environment. The objective is the same: highly centralized power given to the best and the brightest, the new class of experts, managers and technocrats. This time, however, the alleged justification is not abolishing oppression and inequality but saving the planet.

Not everyone is pleased with the coming New Carbon-Free International Order. When the Obama administration signaled (in a gesture to Copenhagen) a U.S. commitment to major cuts in carbon emissions, Democratic Sen. Jim Webb wrote the president protesting that he lacks the authority to do so unilaterally. That requires congressional concurrence by legislation or treaty.

With the Senate blocking President Obama's cap-and-trade carbon legislation, the EPA coup d'etat served as the administration's loud response to Webb: The hell we can't. With this EPA "endangerment" finding, we can do as we wish with carbon. Either the Senate passes cap-and-trade, or the EPA will impose even more draconian measures: all cap, no trade.

Forget for a moment the economic effects of severe carbon chastity. There's the matter of constitutional decency. If you want to revolutionize society -- as will drastic carbon regulation and taxation in an energy economy that is 85 percent carbon-based -- you do it through Congress reflecting popular will. Not by administrative fiat of EPA bureaucrats.

Congress should not just resist this executive overreaching, but trump it: Amend clean-air laws and restore their original intent by excluding CO2 from EPA control and reserving that power for Congress and future legislation.

Do it now. Do it soon. Because Big Brother isn't lurking in CIA cloak. He's knocking on your door, smiling under an EPA cap.

from the Wall Street Journal, 2009-Dec-17, p.11:

Cap and Trade in Practice
How to get paid for laying off workers.

The world's carboncrats are beavering away this week on a vast new global cap-and-trade scheme that President Obama wants the U.S. to join. But before we do, maybe Americans should understand how this already works in practice. Union workers, take note.

The Kyoto Protocol of 1997 required signatories to reduce their carbon emissions, and the European Union in 2005 launched its own cap-and-trade system. The program sets a limit on carbon emissions, and companies are issued free carbon allowances that they can buy or sell based on their emissions needs.

Fast forward to this month's news that Corus, Europe's second-largest steel producer, is shuttering a giant U.K. steelmaking plant at Redcar, cutting 1,700 jobs. Corus blames the recession that has cut steel demand and says the British government hasn't done enough to help it.

Whatever the truth of that, there's little doubt that cap and trade made the closure much easier. The decline in steel production means European steelmakers have surplus carbon allowances. According to Carbon Market Data, a European research firm, in 2008 Corus had the second largest surplus of EU carbon allowances—7.5 million.

The EU is looking for ways to drive today's depressed allowance price of about $21 apiece back up to former highs of about $50, so Corus has the potential for a $375 million windfall. By closing Redcar's annual capacity of three million tons of steel, Corus will produce six million fewer tons of CO2. That means more carbon allowances, which could translate into about $300 million a year if credits hit $50. Corus is essentially being paid to lay off British workers.

Corus will also profit if it moves the production to India. As part of Kyoto, the United Nations created the Clean Development Mechanism to encourage Western companies to invest in developing-world factories. Participants are financially rewarded based on the amount of carbon they "save" with more efficient plants.

Corus was bought in 2007 by Tata, India's largest steel company. The Indian steel industry is set to more than double production to some 124 million tons a year by 2011-2012. Were Corus to move production to a "clean" Indian factory, it could receive hundreds of millions of dollars annually from the Clean Development Fund. The kicker is that none of this results in fewer carbon emissions. A Corus plant in India might be more efficient by Indian standards, but it will be no more efficient than Redcar.

We should add that all of this is precisely what Kyoto envisioned. The idea is to tax Western industry and then send the proceeds to developing countries as an incentive to join the anticarbon crusade. But unless governments close their borders to foreign investment, business will flow to where the carbon tariff is least punishing. China and India understand this, which is why they won't agree at Copenhagen to anything that reduces this advantage.

The Corus story also shows that cap and trade isn't really a free market. Markets develop to efficiently allocate resources and capital. Carbon cap and trade is a government-rigged market, in which carbon allowances are dispensed based on political influence. Such a system is ripe for manipulation, and Corus is merely the latest example.

To summarize: Cap and trade is a scheme that would impose heavy carbon taxes and allowances on U.S. industries, which would then have an incentive to move overseas themselves, or to sell those allowances to overseas companies that could use them to become more competitive against U.S. companies. Like the 1,700 Brits at Redcar, American workers would be the big losers.

from the Wall Street Journal, 2009-Dec-28, p.A16:

The New Climate Litigation
How about if we sue you for breathing?

Fresh from the fiasco in Copenhagen and with a failure in the U.S. Senate looming this coming year, the climate-change lobby is already shifting to Plan B, or is it already Plan D? Meet the carbon tort.

Across the country, trial lawyers and green pressure groups—if that's not redundant—are teaming up to sue electric utilities for carbon emissions under "nuisance" laws.

A group of 12 Gulf Coast residents whose homes were damaged by Katrina are suing 33 energy companies for greenhouse gas emissions that allegedly contributed to the global warming that allegedly made the hurricane worse. Connecticut Attorney General Richard Blumenthal and seven state AG allies plus New York City are suing American Electric Power and other utilities for a host of supposed eco-maladies. A native village in Alaska is suing Exxon and 23 oil and energy companies for coastal erosion.

What unites these cases is the creativity of their legal chain of causation and their naked attempts at political intimidation. "My hope is that the court case will provide a powerful incentive for polluters to be reasonable and come to the table and seek affordable and reasonable reductions," Mr. Blumenthal told the trade publication Carbon Control News. "We're trying to compel measures that will stem global warming regardless of what happens in the legislature."

Mull over that one for a moment. Mr. Blumenthal isn't suing to right a wrong. He admits that he's suing to coerce a change in policy no matter what the public's elected representatives choose.

Cap and trade or a global treaty like the one that collapsed in Copenhagen would be destructive—but at least either would need the assent of a politically accountable Congress. The Obama Administration's antidemocratic decision to impose carbon regulation via the Environmental Protection Agency would be even more destructive—but at least it would be grounded in an existing law, the 1977 Clean Air Act, however misinterpreted. The nuisance suits ask the courts to make such fundamentally political decisions themselves, with judges substituting their views for those of the elected branches.

And now that you mention it, the U.S. appeals courts seem more than ready to arrogate to themselves this power. In September, the Second Circuit allowed Mr. Blumenthal's suit to proceed, while a three-judge panel of the Fifth Circuit reversed a lower court's dismissal of the Katrina case in October. An en banc hearing is now under consideration.

But global warming is, well, global: It doesn't matter whether ubiquitous CO2 emissions come from American Electric Power or Exxon—or China. "There is no logical reason to draw the line at 30 defendants as opposed to 150, or 500, or even 10,000 defendants," says David Rivkin, an attorney at Baker Hostetler and a contributor to our pages, in an amicus brief in the Katrina case. "These plaintiffs—and any others alleging injury by climatic phenomena—would have standing to assert a damages claim against virtually every entity and individual on the planet, since each 'contributes' to global concentrations of carbon dioxide."

In other words, the courts would become a venue for a carbon war of all against all. Not only might businesses sue to shackle their competitors—could we sue the New York Times for deforestation?—but judges would decide the remedies against specific defendants. In practice this would mean ad hoc command-and-control regulation against any industries that happen to catch the green lobby's eye.

Carbon litigation without legislation is one more way to harm the economy, and the rule of law. We hope the Fifth Circuit will have the good sense to deflect this damaging legal theory before it crash-lands at the Supreme Court.

from the Wall Street Journal, 2010-Jan-10:

California Cap-and-Trade Revolt
A ballot measure would suspend the law until joblessness falls.

Could Californians finally be serious about turning around their sputtering economy? One hopeful sign is a ballot initiative that would repeal the Golden State's version of a cap-and-trade carbon tax.

This feel-good law to reduce the state's carbon footprint was enacted with great hoopla by the Democratic legislature and Republican Governor Arnold Schwarzenegger in 2006 when the state's economy was growing and the jobless rate was 5%. The law requires that starting in 2012 the state must ratchet down its carbon emissions to 1990 levels by 2020. The politicians and green lobbies told voters this energy tax would create jobs—the same fairy tale many in Washington are repeating today.

Now the jobless rate is 12.3%, 2.25 million Californians are unemployed, and the state government is broke. So Republican Assemblyman Dan Logue has begun collecting signatures for "The Global Warming Solutions Act," a ballot initiative that would suspend California's cap-and-trade scheme until the unemployment rate falls below 5.5%. He's aiming to get it on the November ballot.

No matter what one thinks of climate science, it makes little sense for an individual state to unilaterally impose major new tax and regulatory costs on its own industries. The impact of California's gesture on global temperatures will be infinitesimal, but the economic impact will make the state even less attractive to start or expand a business.

A 2009 study by economists at the California State University at Sacramento and commissioned by the California Small Business Roundtable found that the implementation costs "could easily exceed $100 billion" and that the program would raise the cost of living by $3,857 per household each year by 2020. So much for the free green lunch.

The law all but encourages outsourcing to Nevada, Texas, China and India. Even the liberal Sacramento Bee, which supports the law, says that policy makers should be "candid about the real costs of the transition it is contemplating. . . . Industries that are energy-intensive will move elsewhere."

Meanwhile, a new study commissioned by the Governor's Office of Small Business Advocacy estimates that the direct cost of current California regulation is $175 billion, or nearly twice the size of the state general fund budget and about $134,000 per small business each year. The Golden State already has the second most business-unfriendly regulatory climate in the nation, after New Jersey and before the cap-and-trade law.

The stakes here are huge, and not merely for California. This is the first serious effort to roll back the environmental extremism that has dominated state capitals in recent years and is now ascendant on Capitol Hill. The green lobbies and businesses that have a monetary stake in cap and trade—including big utilities that want subsidies and Silicon Valley political capitalists investing in solar and ethanol—are sure to spend heavily to stop it. They know that an electoral defeat in the greenest of states could end their national and global hopes for cap and trade.

For Californians the issue is simpler: Whether they want to continue to impose burdens that encourage employers to locate anywhere except their once prosperous state.

from Fox News, 2009-Dec-18:

Democratic Districts Won Twice as Much Stimulus as GOP Districts, Study Shows

Democratic districts have received nearly twice as much stimulus money as Republican districts and the cash has been awarded without regard to how badly an area was suffering from job losses, according to a new study.

The Mercatus Center at George Mason University reviewed the distribution of $157 billion in stimulus dollars based on publicly available reports and found that there was "no statistical correlation" between the amount of money a district got and its income or unemployment rate.

"You would think, right, that if the administration believes in its theory that government money can create jobs, they would spend a lot of money in districts that have high unemployment," study co-author Veronique de Rugy said. "We found absolutely no relationship. It just kind of shows that the money is spent kind of randomly."

Rather, the study found that Democratic congressional districts received 1.89 times more money than GOP districts. The average award for Democratic districts was $439 million, while the average award for Republican ones was $232 million.

On average, Democratic districts also got 152 awards, while Republican ones got 94.

The data is sure to fuel skepticism about the $787 billion stimulus bill passed in February that only garnered three Republican votes. While the administration claims it has created 640,000 jobs, critics point to the still-soaring 10 percent unemployment rate in arguing that the stimulus has had a nominal effect.

Oddly, the Mercatus study found far more stimulus money went to higher-income areas than lower-income areas.

"We found no correlation between economic indicators and stimulus funding. Preliminary results find no effect of unemployment, median income, or mean income on stimulus funds allocation," the report said.

from the Washington Post, 2010-Jan-9, p.A1, by Neil Irwin, Annie Gowen and Ben Pershing, with Michael A. Fletcher contributing:

U.S. job loss report is blow to still-fragile recovery

The job market remained in a deep funk in December, according to a government report Friday showing that employers view the economic recovery as too weak and too fragile to begin hiring again on any large scale.

The pace of layoffs has slowed sharply in recent months, but businesses still cut 85,000 net jobs in December, the Labor Department said. The unemployment rate was unchanged at 10 percent, but economists suspect this is only because hundreds of thousands of frustrated workers stopped looking for jobs.

With the jobless rate stuck in double digits and Democrats worried that the weak economy will prompt voters to turn on them in fall elections, the White House plans more public events in coming weeks to underscore its concern about jobs and the economy. On Friday, President Obama called the employment report a setback during his announcement of $2.3 billion in tax credits to support renewable energy, which the administration says will create 17,000 jobs.

"The road to recovery is never straight," Obama said, "and we have to continue to work every single day to get our economy moving again."

Senate Democrats, meanwhile, have begun crafting a bill to encourage job creation, which Democratic aides said will likely focus on small business, infrastructure spending and "green" energy. The House passed a $154 billion jobs bill in December.

The report was not without bright spots; for instance, revised figures for November showed that the nation had actually added 4,000 jobs that month. It was the first month of job creation since December 2007.

But the overall numbers were fundamentally disappointing, defying forecasters who had expected the number of jobs to hold steady and undermining hopes that better times are near for American workers. Half a year after the economy resumed growing, the job market remains stuck in neutral.

"Businesses just aren't set to hire, yet," said Mark Vitner, senior economist at Wells Fargo. "They've spent the last two years shrinking their operations to survive, and they're largely done with that, but they aren't seeing much reason to expand their operations yet."

Employers slashed positions more dramatically in the past two years, squeezing more productivity out of remaining workers. That has led many analysts to expect a substantial increase in the number of jobs in the early months of 2010, as companies must hire again just to keep up with demand for their products.

That still may happen, though the new report showed the deep sense of caution that remains among employers.

"What we're seeing is slow, incremental progress," said Paul Villella, chief executive of HireStrategy, an employment services firm in Reston. "There is more activity, but nobody is saying, I need to hire someone tomorrow."

One positive sign was the addition of 46,500 temporary jobs. That may presage overall job growth in the months ahead, as companies bring on temps to help meet demand while waiting to see whether improved business conditions last.

Still, the continued weak job market has made for brutal conditions for those seeking work. The ranks of the long-term unemployed have soared, and 6.1 million Americans have now been unemployed for more than six months.

The unemployment rate held even in December, despite a rise in the number of people without jobs, because 661,000 dropped out of the labor market entirely. That means they were no longer counted as unemployed. As the economy improves, some of those people will likely return to the labor force, which could keep the unemployment rate elevated for many months to come.

"There's definitely a discouraged worker effect going on here," said Ethan Harris, head of North American economics at Bank of America-Merrill Lynch. "It's going to make it very hard to bring down the unemployment rate."

The difficulties facing job seekers mired in the worst labor market in a generation were on display Friday at the Arlington Employment Center, where every computer in the resource center was filled at lunchtime.

"We haven't seen a full-blown recovery," said Howard J. Feldstein, director of the center, where traffic is up 40 percent in the past six months. "There are still a lot of people coming here for services and employment."

Alexandra Deaza, 39, has been looking for a job in international relations since she relocated here from Wisconsin last year. She has had just a half-dozen interviews in six months and is receiving public assistance and food stamps.

"It's horrible," she said. "I am really desperate."

Sha'aron Ridley, 32, was on Craigslist looking at the latest postings. She has been looking for a full-time job since October 2008, and said she has been piecing together her $1,650 rent payment by working 16-hour days as a personal assistant and at nights as a telephone customer service representative.

"It's really, really bad out there," Ridley said. "I just try and work hard and hope for the best and that it's just a temporary situation."

Against that backdrop, the Obama administration and Congress are both searching for policies that might help create jobs, looking at approaches that are less costly than the $787 billion stimulus bill passed in February and more narrowly targeted at creating jobs than propping up overall economic activity.

The House passed a hastily-assembled $154 billion jobs package before recessing in December, but the Senate chose to wait. Now that chamber is preparing its own, likely more modest measure, with an eye toward putting it on the floor in February. Senators return to town Jan. 19, and are expected to vote quickly on raising the federal debt ceiling before turning to health care and then the jobs bill.

Senate Majority Whip Dick Durbin (D-Ill.) and Sen. Byron L. Dorgan (D-N.D.) have been tasked with assembling the jobs measure, and the two lawmakers have been paring a list of more than 100 ideas submitted by their colleagues. A Democratic aide, requesting anonymity because the discussions are preliminary, said the ideas fall into four categories: small business, infrastructure, green energy and the public sector.

A second Democratic aide said that infrastructure spending would likely be a major component of the package, but the aide said there was "small appetite" in the Senate for a package as large as the one that passed the House in December.

from the Associated Press, 2010-Jan-11, by Matt Apuzzo and Brett J. Blackledge:

STIMULUS WATCH: Unemployment unchanged by projects

A federal spending surge of more than $20 billion for roads and bridges in President Barack Obama's first stimulus has had no effect on local unemployment rates, raising questions about his argument for billions more to address an "urgent need to accelerate job growth."

An Associated Press analysis of stimulus spending found that it didn't matter if a lot of money was spent on highways or none at all: Local unemployment rates rose and fell regardless. And the stimulus spending only barely helped the beleaguered construction industry, the analysis showed.

With the nation's unemployment rate at 10 percent and expected to rise, Obama wants a second stimulus bill from Congress including billions of additional dollars for roads and bridges _ projects the president says are "at the heart of our effort to accelerate job growth."

Transportation Secretary Ray LaHood defended the administration's recovery program Monday, writing on his blog that "DOT-administered stimulus spending is the only thing propping up the transportation construction industry."

Road spending would total nearly $28 billion of the Jobs for Main Street Act, a $75 billion second stimulus to help lower the unemployment rate and improve the dismal job market for construction workers. The Senate is expected to consider the House-approved bill this month.

But AP's analysis, which was reviewed by independent economists at five universities, showed the strategy of pumping transportation money into counties hasn't affected local unemployment rates so far.

"There seems to me to be very little evidence that it's making a difference," said Todd Steen, an economics professor at Hope College in Michigan who reviewed the AP analysis.

And there's concern about relying on transportation spending a second time.

"My bottom line is, I'd be skeptical about putting too much more money into a second stimulus until we've seen broader effects from the first stimulus," said Aaron Jackson, a Bentley University economist who also reviewed AP's analysis.

For the analysis, the AP reviewed Transportation Department data on more than $21 billion in stimulus projects in every state and Washington, D.C., and the Labor Department's monthly unemployment data to assess the effects of road and bridge spending on local unemployment and construction employment. The analysis did not try to measure results of the broader aid that also was in the first stimulus such as tax cuts, unemployment benefits or money for states.

Even within the construction industry, which stood to benefit most from transportation money, the AP's analysis found there was nearly no connection between stimulus money and the number of construction workers hired or fired since Congress passed the recovery program. The effect was so small, one economist compared it to trying to move the Empire State Building by pushing against it.

"As a policy tool for creating jobs, this doesn't seem to have much bite," said Emory University economist Thomas Smith, who supported the stimulus and reviewed AP's analysis. "In terms of creating jobs, it doesn't seem like it's created very many. It may well be employing lots of people but those two things are very different."

Despite the disconnect, Congress is moving quickly to give Obama the additional road money he requested.

"We have a ton of need for repairing our national infrastructure and a ton of unemployed workers to do it. Marrying those two concepts strikes me as good stimulus and good policy," White House economic adviser Jared Bernstein said. "When you invest in this kind of infrastructure, you're creating good jobs for people who need them."

Even so, transportation spending is too small of a pebble to create waves in the nation's $14 trillion economy. And starting a road project, even one considered "shovel ready," can take many months, meaning any modest effects of a second burst of transportation spending are unlikely to be felt for some time.

"It would be unlikely that even $20 billion spent all at once would be enough to move the needle of the huge decline we've seen, even in construction, much less the economy. The job destruction is way too big," said Kenneth D. Simonson, chief economist for the Associated General Contractors of America.

Few counties, for example, received more road money per capita than Marshall County, Tenn., about 90 minutes south of Nashville.

Obama's stimulus is paying the salaries of dozens of workers there, but local officials said the unemployment rate continues to rise and is expected to top 20 percent soon. The new money for road projects isn't enough to offset the thousands of local jobs lost from the closing of manufacturing plants and automotive parts suppliers.

"The stimulus has not benefited the working-class people of Marshall County at all," said Isaac Zimmerle, a local contractor who has seen his construction business slowly dry up since 2008. That year, he built 30 homes. But prospects this year look grim.

The stimulus has produced some jobs. And a growing body of economic evidence suggests that government programs, including a $700 billion bank bailout program and the $787 billion stimulus, have helped ease the recession.

Highway projects have been the public face of the president's recovery efforts, providing the backdrop for news conferences with workers who owe their paychecks to the stimulus. But those anecdotes have not added up to a national trend and have not markedly improved the country's broad employment picture.

The 400-page stimulus law contains so many provisions _ tax cuts, unemployment benefits, food stamps, state aid, military spending _ economists agree that it's nearly impossible to determine what worked best and replicate it. It's also impossible to quantify exactly what effect the stimulus has had on job creation, although Obama points to estimates that credit the recovery program for creating or saving 1.6 million jobs.

It is also becoming more difficult to obtain an accurate count of stimulus jobs. Those who receive stimulus money can now credit jobs to the program even if they were never in jeopardy of being lost, according to new rules outlined by the White House's Office of Management and Budget.

The new rules, reported Monday by the Internet site ProPublica, allow any job paid for with stimulus money to count as a position saved or created.

Rep. Darrell Issa, R-Calif., complained in a letter sent last week to the government board monitoring stimulus spending that the new policy would make job counts "even more misleading."

But Republicans aren't expected to oppose Obama's plans to increase transportation spending, a politically popular idea supported even by some in the GOP who have criticized other stimulus programs.

The road money ripples through the economy better than other spending because it improves the nation's infrastructure, said Bernstein, the White House economist.

But that's a policy argument, not a stimulus argument, said Daniel Seiver, an economist at San Diego State University who reviewed AP's analysis.

"Infrastructure spending does have a long-term payoff, but in terms of an immediate impact on construction jobs it doesn't seem to be showing up," Seiver said. "A program like this may be justified, but it's not going to have an immediate effect of putting people back to work."

from the Wall Street Journal, 2010-Jan-15, p.A18:

Oregon at the Tax Crossroad
A ballot showdown over higher rates.

A great beauty of the American federal system is that any of the 50 states can offer its policies as an experiment for others. So the nation owes some gratitude to Oregon for testing whether it is possible for a state to tax its way from deep recession to prosperity.

Oregon's unemployment rate is 11.1%, among the nation's highest. But Oregonians are now voting by mail whether to endorse a pair of tax increases passed by the legislature last year: one to raise the state's top personal income tax, to 11% from 9%, and another to raise the business income tax, to 7.9% from 6.6%. Both tax hikes would be retroactive to January 1, 2009.

The legislature and governor argue that only the state's wealthiest 2.2% percent of residents will pay this tab. Nonetheless, the liberal Portland Oregonian has editorialized against the new taxes, which it says would target "the very businesses and employers that Oregon is depending on to lead an economic recovery, start hiring again and pay the wages that support state services."

The battle in Oregon is a case study in the political drama now unfolding in many states. Essentially, it's about whether a state's wealth belongs to its public employee unions or to everyone.

The public unions are the primary drivers behind the Oregon tax hike campaign. In recent weeks, national powerhouses AFSCME and the SEIU have poured close to $1 million into the state campaign to secure passage. Oregon's public employees have one of the sweetest deals in America. Their average pay is about one-third higher than that of private Oregon workers, and Oregon public employees don't have to pay anything toward their health-care benefits.

In the last budget, the Democratic controlled state legislature doled out a $259 million pay raise to the government work force, even as the state was facing a near $1 billion deficit. In the last three years, the state has added 25,000 new public employees while losing 40,000 private sector jobs. The union TV ads say the tax hikes are needed to preserve schools, roads and public services.

The 11% income tax rate will make Oregon's income tax about twice as high as the national average. Businesses in Portland can move across the Columbia River to Vancouver, Washington and pay zero income tax. Oregonians used to argue they didn't have to pay a state sales tax. But the current tax proposal imposes a first-ever "gross receipts tax" on certain retail and wholesalers. This is a disguised sales tax.

Despite the state's well-earned reputation for sympathy with all manner of liberal causes, Oregon voters trounced two major tax-hike initiatives in 2003 and 2004. Now Oregon has reached a crossroads. If Oregon enacts these tax hikes to fund its rising public payroll after a severe recession and amid a slow recovery, we'll revisit the state in the future to see how many private workers are still there to pay the taxes.

from the Wall Street Journal, 2009-Dec-30:

Union Baggage Claims
Flight 253 becomes an excuse to organize airport screeners.

The notion that unionized airport baggage screeners in Detroit could have prevented Umar Farouk Abdulmutallab from boarding a plane in Amsterdam or Lagos doesn't make much sense. But sure enough, some in Congress are using the thwarted Christmas Day terrorist attack to argue that a new leader for the Transportation Security Administration could have saved the day.

Rahm Emanuel's famous declaration that a crisis is a terrible thing to waste seems to have become a way of Washington life.

That's the meaning of the political and media beatdown now being visited on Republican Senator Jim DeMint for the high crime of putting a hold on the nomination of Erroll Southers to head TSA, which runs the 50,000 airport screeners. Mr. DeMint objects because Mr. Southers has refused to say whether he would reverse current policy and back collective bargaining for baggage and passenger screeners, which the Obama Administration and Democrats on Capitol Hill support.

Thus the faux security outrage. "If TSA is to become the kind of nimble, responsive organization the American people deserve in times like this, it will need a Senate-confirmed administrator," said House Homeland Security Chairman Bennie Thompson on Monday. "If nothing else, the events of last week highlighted this lack of leadership."

They did? We thought the episode highlighted the dangers of Yemen as a radical Islamist sanctuary and the failure to revoke a visa to Mr. Abdulmutallab despite warnings from his father—neither of which have much to do with TSA.

A spokesman for Senate Majority Leader Harry Reid also couldn't resist displaying his boss's union baggage, calling Senator DeMint's actions "disgraceful" and claiming that "Republican obstructionism has prevented TSA from having the leadership in place that the organization deserves." Mr. Reid's 24/7 forced health-care march has made him even crankier than usual.

Neither Democrat mentioned that President Obama didn't bother to nominate Mr. Southers to fill the TSA post until September, nor that Democrats didn't vote the nominee out of committee until the middle of last month. Such a languid pace hardly suggests that they considered the TSA job to be vital to national security.

By contrast, Mr. DeMint's objection is rooted in a substantive concern that union practices and work rules will compromise security. TSA uses a performance pay system that tries to reward ability and effort, with the goal of recruiting and retaining the best employees. Unions prefer seniority-based pay that puts a premium on time served rather than performance.

TSA also needs to be able to change its procedures or move personnel to high-risk locations on short notice. Agency managers now have the ability to do that, but under union work rules they might need to get the permission of union leaders, who won't want to upset the rank-and-file.

In other words, Congressman Thompson has it exactly backwards. If the goal is to have a "nimble, responsive" TSA, a non-union work force makes more sense.

TSA employees already have the right to join the American Federation of Government Employees (AFGE) and the National Treasury Employees Union, but the unions are not allowed to bargain on their behalf. Gale Rossides, the acting head of TSA, has declined to change the policy on collective bargaining, as has every previous TSA leader.

But during last year's Presidential campaign, Mr. Obama sent a letter to the AFGE seeking an endorsement and expressing support for collective bargaining for TSA employees. He got the endorsement, and now he's trying to pay the union back with 50,000 new dues-paying members. Homeland Security Secretary Janet Napolitano said earlier this year that she was exploring whether she had the legal authority to give TSA workers the right to bargain.

We don't like the practice of Senators putting holds on nominees, preferring up or down votes. But Democrats did this routinely during the Bush years—remember John Bolton—and they hardly have standing to object now that Republicans are returning the favor. And to the extent that Mr. Southers would unionize airport screeners, he'd be the one doing more potential harm to national security.

from the Wall Street Journal, 2009-Dec-20:

Change Nobody Believes In
A bill so reckless that it has to be rammed through on a partisan vote on Christmas eve.

And tidings of comfort and joy from Harry Reid too. The Senate Majority Leader has decided that the last few days before Christmas are the opportune moment for a narrow majority of Democrats to stuff ObamaCare through the Senate to meet an arbitrary White House deadline. Barring some extraordinary reversal, it now seems as if they have the 60 votes they need to jump off this cliff, with one-seventh of the economy in tow.

Mr. Obama promised a new era of transparent good government, yet on Saturday morning Mr. Reid threw out the 2,100-page bill that the world's greatest deliberative body spent just 17 days debating and replaced it with a new "manager's amendment" that was stapled together in covert partisan negotiations. Democrats are barely even bothering to pretend to care what's in it, not that any Senator had the chance to digest it in the 38 hours before the first cloture vote at 1 a.m. this morning. After procedural motions that allow for no amendments, the final vote could come at 9 p.m. on December 24.

Even in World War I there was a Christmas truce.

The rushed, secretive way that a bill this destructive and unpopular is being forced on the country shows that "reform" has devolved into the raw exercise of political power for the single purpose of permanently expanding the American entitlement state. An increasing roll of leaders in health care and business are looking on aghast at a bill that is so large and convoluted that no one can truly understand it, as Finance Chairman Max Baucus admitted on the floor last week. The only goal is to ram it into law while the political window is still open, and clean up the mess later.

***

• Health costs. From the outset, the White House's core claim was that reform would reduce health costs for individuals and businesses, and they're sticking to that story. "Anyone who says otherwise simply hasn't read the bills," Mr. Obama said over the weekend. This is so utterly disingenuous that we doubt the President really believes it.

The best and most rigorous cost analysis was recently released by the insurer WellPoint, which mined its actuarial data in various regional markets to model the Senate bill. WellPoint found that a healthy 25-year-old in Milwaukee buying coverage on the individual market will see his costs rise by 178%. A small business based in Richmond with eight employees in average health will see a 23% increase. Insurance costs for a 40-year-old family with two kids living in Indianapolis will pay 106% more. And on and on.

These increases are solely the result of ObamaCare—above and far beyond the status quo—because its strict restrictions on underwriting and risk-pooling would distort insurance markets. All but a handful of states have rejected regulations like "community rating" because they encourage younger and healthier buyers to wait until they need expensive care, increasing costs for everyone. Benefits and pricing will now be determined by politics.

As for the White House's line about cutting costs by eliminating supposed "waste," even Victor Fuchs, an eminent economist generally supportive of ObamaCare, warned last week that these political theories are overly simplistic. "The oft-heard promise 'we will find out what works and what does not' scarcely does justice to the complexity of medical practice," the Stanford professor wrote.

• Steep declines in choice and quality. This is all of a piece with the hubris of an Administration that thinks it can substitute government planning for market forces in determining where the $33 trillion the U.S. will spend on medicine over the next decade should go.

This centralized system means above all fewer choices; what works for the political class must work for everyone. With formerly private insurers converted into public utilities, for instance, they'll inevitably be banned from selling products like health savings accounts that encourage more cost-conscious decisions.

Unnoticed by the press corps, the Congressional Budget Office argued recently that the Senate bill would so "substantially reduce flexibility in terms of the types, prices, and number of private sellers of health insurance" that companies like WellPoint might need to "be considered part of the federal budget."

With so large a chunk of the economy and medical practice itself in Washington's hands, quality will decline. Ultimately, "our capacity to innovate and develop new therapies would suffer most of all," as Harvard Medical School Dean Jeffrey Flier recently wrote in our pages. Take the $2 billion annual tax—rising to $3 billion in 2018—that will be leveled against medical device makers, among the most innovative U.S. industries. Democrats believe that more advanced health technologies like MRI machines and drug-coated stents are driving costs too high, though patients and their physicians might disagree.

"The Senate isn't hearing those of us who are closest to the patient and work in the system every day," Brent Eastman, the chairman of the American College of Surgeons, said in a statement for his organization and 18 other speciality societies opposing ObamaCare. For no other reason than ideological animus, doctor-owned hospitals will face harsh new limits on their growth and who they're allowed to treat. Physician Hospitals of America says that ObamaCare will "destroy over 200 of America's best and safest hospitals."

• Blowing up the federal fisc. Even though Medicare's unfunded liabilities are already about 2.6 times larger than the entire U.S. economy in 2008, Democrats are crowing that ObamaCare will cost "only" $871 billion over the next decade while fantastically reducing the deficit by $132 billion, according to CBO.

Yet some 98% of the total cost comes after 2014—remind us why there must absolutely be a vote this week—and most of the taxes start in 2010. That includes the payroll tax increase for individuals earning more than $200,000 that rose to 0.9 from 0.5 percentage points in Mr. Reid's final machinations. Job creation, here we come.

Other deceptions include a new entitlement for long-term care that starts collecting premiums tomorrow but doesn't start paying benefits until late in the decade. But the worst is not accounting for a formula that automatically slashes Medicare payments to doctors by 21.5% next year and deeper after that. Everyone knows the payment cuts won't happen but they remain in the bill to make the cost look lower. The American Medical Association's priority was eliminating this "sustainable growth rate" but all they got in return for their year of ObamaCare cheerleading was a two-month patch snuck into the defense bill that passed over the weekend.

The truth is that no one really knows how much ObamaCare will cost because its assumptions on paper are so unrealistic. To hide the cost increases created by other parts of the bill and transfer them onto the federal balance sheet, the Senate sets up government-run "exchanges" that will subsidize insurance for those earning up to 400% of the poverty level, or $96,000 for a family of four in 2016. Supposedly they would only be offered to those whose employers don't provide insurance or work for small businesses.

As Eugene Steuerle of the left-leaning Urban Institute points out, this system would treat two workers with the same total compensation—whatever the mix of cash wages and benefits—very differently. Under the Senate bill, someone who earned $42,000 would get $5,749 from the current tax exclusion for employer-sponsored coverage but $12,750 in the exchange. A worker making $60,000 would get $8,310 in the exchanges but only $3,758 in the current system.

For this reason Mr. Steuerle concludes that the Senate bill is not just a new health system but also "a new welfare and tax system" that will warp the labor market. Given the incentives of these two-tier subsidies, employers with large numbers of lower-wage workers like Wal-Mart may well convert them into "contractors" or do more outsourcing. As more and more people flood into "free" health care, taxpayer costs will explode.

• Political intimidation. The experts who have pointed out such complications have been ignored or dismissed as "ideologues" by the White House. Those parts of the health-care industry that couldn't be bribed outright, like Big Pharma, were coerced into acceding to this agenda. The White House was able to, er, persuade the likes of the AMA and the hospital lobbies because the federal government will control 55% of total U.S. health spending under ObamaCare, according to the Administration's own Medicare actuaries.

Others got hush money, namely Nebraska's Ben Nelson. Even liberal Governors have been howling for months about ObamaCare's unfunded spending mandates: Other budget priorities like education will be crowded out when about 21% of the U.S. population is on Medicaid, the joint state-federal program intended for the poor. Nebraska Governor Dave Heineman calculates that ObamaCare will result in $2.5 billion in new costs for his state that "will be passed on to citizens through direct or indirect taxes and fees," as he put it in a letter to his state's junior Senator.

So in addition to abortion restrictions, Mr. Nelson won the concession that Congress will pay for 100% of Nebraska Medicaid expansions into perpetuity. His capitulation ought to cost him his political career, but more to the point, what about the other states that don't have a Senator who's the 60th vote for ObamaCare?

***

"After a nearly century-long struggle we are on the cusp of making health-care reform a reality in the United States of America," Mr. Obama said on Saturday. He's forced to claim the mandate of "history" because he can't claim the mandate of voters. Some 51% of the public is now opposed, according to National Journal's composite of all health polling. The more people know about ObamaCare, the more unpopular it becomes.

The tragedy is that Mr. Obama inherited a consensus that the health-care status quo needs serious reform, and a popular President might have crafted a durable compromise that blended the best ideas from both parties. A more honest and more thoughtful approach might have even done some good. But as Mr. Obama suggested, the Democratic old guard sees this plan as the culmination of 20th-century liberalism.

So instead we have this vast expansion of federal control. Never in our memory has so unpopular a bill been on the verge of passing Congress, never has social and economic legislation of this magnitude been forced through on a purely partisan vote, and never has a party exhibited more sheer political willfulness that is reckless even for Washington or had more warning about the consequences of its actions.

These 60 Democrats are creating a future of epic increases in spending, taxes and command-and-control regulation, in which bureaucracy trumps innovation and transfer payments are more important than private investment and individual decisions. In short, the Obama Democrats have chosen change nobody believes in—outside of themselves—and when it passes America will be paying for it for decades to come.

from the Wall Street Journal, 2009-Dec-25, by Patrick J. Wright and Michael D. Jahr:

Michigan Forces Business Owners Into Public Sector Unions
After hemorrhaging members for decades, labor unions have hit upon a new way to shore up their annual dues revenue.

Flint, Mich.

Michelle Berry runs a private day-care service from her home on the outskirts of this city, the birthplace of General Motors. "The Berry Patch," as she calls the service, features overstuffed purple gorillas, giant cartoon murals, and a playroom covered in Astroturf. Her clients are mostly low-income parents who need child care to keep their jobs in a city that now has a 26% unemployment rate.

Ms. Berry owns her own business—yet the Michigan Department of Human Services claims she is a government employee and union member. The agency thus withholds union dues from the child-care subsidies it sends to her on behalf of her low-income clients. Those dues are funneled to a public-employee union that claims to represent her. The situation is crazy—and it's happening elsewhere in the country.

A year ago in December, Ms. Berry and more than 40,000 other home-based day care providers statewide were suddenly informed they were members of Child Care Providers Together Michigan—a union created in 2006 by the United Auto Workers and the American Federation of State, County and Municipal Employees. The union had won a certification election conducted by mail under the auspices of the Michigan Employment Relations Commission. In that election only 6,000 day-care providers voted. The pro-labor vote turned out.

Many of the state's other 34,000 day-care providers never even realized what was going on. Ms. Berry tells us she was "shocked" to find out she was suddenly in a union. The real dirty work, however, had been done when the state created an "employer" for the union to "organize" against.

Of course, Michigan's independent day-care providers don't work for anybody except the parents who were their customers. Nevertheless, because some of these parents qualified for public subsidies, the Child Care Providers "union" claimed the providers were "public employees."

Michigan's Department of Human Services then teamed with Flint-based Mott Community College to sign an "interlocal agreement" in 2006 establishing a separate government agency called the Michigan Home Based Child Care Council. This council was directed to recommend good child-care practices—and not coincidentally, to serve as a "public employer." Although the council had almost no staff, no control over the state subsidies and no supervision of the providers' daily activities, it became the shell corporation against which the union could organize.

Thus the state created an ersatz employer and an ersatz "bargaining unit" against which what was essentially an ersatz union could organize.

Today the Department of Human Services siphons about $3.7 million in annual dues to the union—from the child-care subsidies. The money should be going to home-based day-care providers—themselves not on the high end of the income scale. Ms. Berry now sees money once paid to her go to a union that does little for her. She says she is "self employed and wants nothing to do with the union."

The union claims it is working for Ms. Berry and others like her by pressing the legislature to increase child-care payments. But lobbying is not an activity that requires compulsory unionism.

Sherry Loar, who owns a day-care center in Petoskey, Mich., is the lead client in a lawsuit brought against the Department of Human Services in state court by the legal arm of the Michigan-based Mackinac Center, a free-market think tank for whom we work. (Ms. Berry is petitioning to join the suit.) The case is based on the grounds that state law presumes that no one is subject to public-sector bargaining unless state legislation has made them so, and in this case, there is no legislation—only the flimsy interlocal agreement. "I'm not opposed to unions," Ms. Loar says, "everything has a place. But when we enter my door, this is my home."

The larger question, not part of this lawsuit, is whether this sort of unionization violates the U.S. Constitution. The freedom of association clause prevents compulsory unionism except, courts have determined, when it is necessary for "labor peace." But in this case, whom would the day-care providers riot against? The parents?

The federal question may be raised soon, as other states have pursued similar unionization schemes over the past decade, primarily at the behest of the American Federation of State, County and Municipal Employees and the Service Employees International Union, better known as the SEIU. Fourteen states have now enabled home-based day-care providers to be organized into public-employee unions, affecting about 233,000 people. And nine have done so with home health-care providers. The idea to unionize in this way was hatched in California, though ironically Gov. Arnold Schwarzenegger has vetoed legislation to unionize child-care providers.

It's telling that in several states that have gone down this road, state and federal subsidies are the source of the union dues. In Michigan, the scheme is essentially throwing a cash lifeline to unions like the UAW, which are hemorrhaging members.

There's another, ironic twist to the story in the Great Lakes state. Last month the Michigan Economic Development Corporation granted a for-profit SEIU subsidiary, the SEIU Member Action Service Center, a $2 million refundable tax credit to locate a new business facility in the state that will provide administrative services for the union and other local labor organizations. The subsidy strikes us as inappropriate because it categorized the SEIU subsidiary as a business and occurred just before the 5,000 member SEIU local 517M granted the state wage concessions. Shamelessly, the SEIU requested the credit because Michigan has high labor costs.

Some states are redefining straightforward terms—a union as a business, an employer as an employee—primarily to aid organized labor. This highlights the need to re-examine public-sector collective bargaining. Shielded from market pressures, public employee unions have driven up taxpayer costs for decades. Now labor leaders are shanghaiing entrepreneurs such as Ms. Berry and Ms. Loar into government unions because their clients receive government aid. Who will be next? Grocers? Landlords? Doctors?

Mr. Wright is director of the Mackinac Center Legal Foundation. Mr. Jahr is senior director of communications for the Mackinac Center for Public Policy, a research and educational institute headquartered in Midland, Mich.

from the Wall Street Journal, 2009-Dec-28, p.A15, by L. Gordon Crovitz:

Technology Predictions Are Mostly Bunk

'Tis the season for predictions, so "Information Age" bravely goes out on this limb: Most technology predictions for 2010 won't come true. The more we learn about how innovation happens, the less straight the lines of advance look.

"Inventions have long since reached their limit, and I see no hope for further developments," said Roman engineer Julius Sextus Frontinus in 10 A.D. This end-of-progress view has been echoed many times, including by Charles Duell, commissioner for the U.S. Patent Office, who in 1899 said, "Everything that can be invented has already been invented."

It's worth recalling, especially in a gloomy year like the one drawing to an end, that the opposite is true: The more we invent, the more we invent. Knowledge grows on itself.

So here are the rest of my Top 10 Worst Technology Predictions, which prove that when it comes to tech, optimism pays:

"The Americans have need of the telephone, but we do not. We have plenty of messenger boys," Sir William Preece, chief engineer at the British Post Office, 1878.

"Who the hell wants to hear actors talk?" H.M. Warner, Warner Bros., 1927.

"I think there is a world market for maybe five computers," Thomas Watson, chairman of IBM, 1943.

"Television won't be able to hold on to any market it captures after the first six months. People will soon get tired of staring at a plywood box every night," Darryl Zanuck, 20th Century Fox, 1946.

"The world potential market for copying machines is 5,000 at most," IBM executives to the eventual founders of Xerox, 1959.

"There is no reason anyone would want a computer in their home," Ken Olsen, founder of mainframe-producer Digital Equipment Corp., 1977.

"No one will need more than 637 kb of memory for a personal computer—640K ought to be enough for anybody," Bill Gates, Microsoft, 1981.

"Next Christmas the iPod will be dead, finished, gone, kaput," Sir Alan Sugar, British entrepreneur, 2005.

Sometimes predictions about technology fail because they're overly optimistic—for example, we don't commute by jetpack yet—but more often predictions fail because we underestimate the ability of inventors.

Arthur C. Clarke, the science fiction writer, identified what he called the "three laws of prediction," reflecting an optimistic view of ingenuity: 1. When a distinguished but elderly scientist states that something is possible, he is almost certainly right. When he states that something is impossible, he is very probably wrong; 2. The only way of discovering the limits of the possible is to venture past them into the impossible; and 3. Any sufficiently advanced technology is indistinguishable from magic.

Clarke was an exception to the rule that predicting future technology is hard. In Wireless World magazine in 1945, he proposed using a set of satellites in geostationary orbit to form a global communications network.

In "The View from Serendip," published in 1977, Clarke predicted the Internet: "Immediate access in the home via simple computer-type keyboards, and TV displays, to all the world's great libraries . . . And items needed for permanent reference could be printed off as soon as located on a copying machine—or filed magnetically in the home storage system."

In the same book, he also forecast email and online news: "Facsimile services whereby letters, printed matter, etc. can be reproduced instantly. The physical delivery of mail and newspapers will thus be largely replaced by the orbital post office, and the orbital newspaper . . ."

As we go into 2010, there are entrepreneurs and technologists doing their best to confound predictions. Or as computer scientist Alan Kay said, "The best way to predict the future is to invent it."

A year ago, it would have been hard to predict that social networking Web sites would become the new mass media, or that Google would be a mobile-phone brand. Technological advances can be frustrating when almost every industry is being dislocated by that fast-moving change. On the other hand, we all benefit from these changes, including in endless consumer choice.

Even a skeptical column on technology predictions would be incomplete without a few predictions, so here are a couple: The much-anticipated tablet computer from Apple won't be on sale before March, and Google's market share for search will remain strong, but not go beyond 85% at the end of 2010.

Disclosure: These predictions look like safe bets because the potential outcomes of these topics are being traded in online betting markets. These markets reflect the wisdom of crowds, which tend to make more accurate predictions than individuals.

from DailyTech.com, 2010-Jan-9, by Jason Mick:

CES Kicks Out Vendors Who Try to Display, Carry Out Business in Hotel Suites
Money is tight, but one has to wonder whether the aggressive tactics at the 2010 CES really help anyone

The International Consumer Electronics Show, first held in 1967 has grown into the world's premier event for showcasing technology innovation of all kinds.  Since 1978 the show has been held during the winter in Las Vegas.  It is now thoroughly entrenched in the city's economy bringing vital business and prestige to the city.  And for consumers it provides them with unparalleled information to form their buying decisions for the next year.

The 2010 Consumer Electronics Show has been mostly a great experience so far.  From solid state drives to in-car infotainment, there's been a wealth of information on exciting incoming products.  However, buried in that technological beauty, a bit of the ugly side of the business reared its head today.

In 2009, CES was much smaller than it was this year.  Hit by the recession many vendors simply chose not to go to the show or dramatically scale back their presentation.  Those who did stay, but were battling cost-cuts learned to adopt cost-saving tactics such as holding business meetings in the suites they rented at local Las Vegas hotels and showing off their product lineup.  Some of these vendors had displays on the CES floor, others did not, but all had one thing in common -- those who stuck it out and stayed were supporting the local economy (via hotel bookings, food and drink orders, etc.) and they were sharing information on exciting products with consumers.

This year many returned to the show, but they returned a bit wiser -- or so they thought.  They deployed similar techniques (in suite meetings and product displays, etc.).  That's where the trouble started.

The CES management became quite irate over vendors independently showing at hotels.  You see, while casinos traditionally do decreased gambling business during the week of CES (this was readily apparent this year), they are reimbursed both by additional patronage of both the nightlife and food, but also directly by the Consumer Electronics Association (CEA).  The traditional food chain continued with the CEA, which in turn received this revenue from sponsors and businesses who wanted to display products or hold meetings at the show.

However, facing some smaller parties avoiding paying exhibition fees and exhibiting in their rooms, the CES began cracking down today.  They requested that hotel security kick out any vendors holding meetings or exhibiting in their rooms.  DailyTech was surprised to hear of this, beginning at a lunch meeting.  A vendor, to remain anonymous, claimed that they were coerced into paying an additional $10,000 exhibition fee to the CEA, despite having fully paid for their suite.  The alternative was to be kicked out of their suite and be unable to exhibit or meet with clients.

The surprises were to continue when we met with another vendor.  As we came into their suite at our scheduled meeting time, we found them to be packing.  They were being kicked out for exhibiting.  And packing up was not enough to satisfy the CES staff and hotel security -- they were not allowed to hold business meetings in their suite either.  Not long after we left, one of their employees contacted DailyTech.  They had been kicked out of the room they had paid for in full.

More importantly, the vendor's chief representative reports that they had contacted the hotel management before the show and asked if there were any limitations on showing product in the suites.  The hotel management at The Venetian reportedly said there were not. 

States our source, "I asked the hotel staff if there were any limitations for using the suite.  They said the only limitations were how many people were at our parties.  They didn't say there were any limitations on displaying product.  We set up our product on the first day.  Then on Wednesday a cleaning person came in and reported what they saw to management.  From there we got kicked out on Thursday. The system is not okay.  We did everything they asked us to do, though.  We can not show any product, we can not hold business meetings, though.  The main problem is they didn't let us know about this in advance. "

The source said they would be coming back to CES next year, but that they were disturbed by the dishonest behavior of the hotel management and CES staff.

A security guard at The Venetian confirmed these reports further, saying he had been involved with "solving" a "lot of problems" at CES.  When we inquired what these "problems" were, he stated, "The problems aren't with CES itself, but with people who didn't go through the proper channels to display the products and hold their business meetings."

Thus far the reports of the incident have been confined to The Venetian and The Palazzo, but similar incidents may have occurred elsewhere.  According to our sources as many as 30 small electronics companies may have been kicked out of The Venetian and The Palazzo on Thursday.

There's absolutely no argument -- CES is a wonderful opportunity for all parties involved.  But the hotels must ask themselves -- amid vacancies and business slowed by recession, is kicking out paying customers the right answer?  The party kicked out had already paid the hotel a great deal, not only for the suite, but for food and drinks at an event the night before.

And for CES, one must wonder whether this is the kind of harsh image the show wants to project.  After all, if small companies can't afford to have a booth on the main floor, they obviously won't get the same high profile coverage that a major floor vendor like, say, Intel gets.  However, by being on site, it would seem they are helping the show, by adding to its allure, giving larger vendors more of a reason to attend (to carry out business with smaller suppliers), and helping customers learn about new products.

If the vendors can't pay, they can't pay.  One smaller company was already kicked out we witnessed today, likely more have been or will be as well.  Is this really good for CES, an industry flagbearer?  And is it really good for the Las Vegas economy, so dependent on the show?  And even if it is, why wasn't the CEA and hotel management more clear about restrictions on exhibits and meetings in Las Vegas hotels this week?  Those are intriguing questions that must be asked.

from the Washington Post, 2009-Dec-10:

Medicare sausage?
The emerging buy-in proposal could have costly unintended consequences.

THE ONLY THING more unsettling than watching legislative sausage being made is watching it being made on the fly. The 11th-hour "compromise" on health-care reform and the public option supposedly includes an expansion of Medicare to let people ages 55 to 64 buy into the program. This is an idea dating to at least the Clinton administration, and Senate Finance Committee Chairman Max Baucus (D-Mont.) originally proposed allowing the buy-in as a temporary measure before the new insurance exchanges get underway. However, the last-minute introduction of this idea within the broader context of health reform raises numerous questions -- not least of which is whether this proposal is a far more dramatic step toward a single-payer system than lawmakers on either side realize.

The details of how the buy-in would work are still sketchy and still being fleshed out, but the basic notion is that uninsured individuals 55 to 64 who would be eligible to participate in the newly created insurance exchanges could choose instead to purchase coverage through Medicare. In theory, this would not add to Medicare costs because the coverage would have to be paid for -- either out of pocket or with the subsidies that would be provided to those at lower income levels to purchase insurance on the exchanges. The notion is that, because Medicare pays lower rates to health-care providers than do private insurers, the coverage would tend to cost less than a private plan. The complication is understanding what effect the buy-in option would have on the new insurance exchanges and, more important, on the larger health-care system.

Currently, Medicare benefits are less generous in significant ways than the plans to be offered on the exchanges. For instance, there is no cap on out-of-pocket expenses. So would near-seniors who buy in to Medicare get Medicare-level benefits? If so, who would tend to purchase that coverage? Sicker near-seniors might be better off purchasing private insurance on the an exchange. But the educated guessing -- and that's a generous description -- is that sicker near-seniors might tend to place more trust in a government-run program; they might assume, with good reason, that the government will be more accommodating in approving treatments, and they might flock to Medicare. That would raise premium costs and, correspondingly, the pressure to dip into federal funds for extra help.

In addition, the insurance exchanges proposal is being increasingly sliced and diced in ways that could narrow its effectiveness. Remember, the overall concept is to group together enough people to spread the risk and obtain better rates. But so-called "young invincibles" -- the under-30 crowd -- would already be allowed to opt out of the regular exchange plans and purchase high-deductible catastrophic coverage. Those with incomes under 133 percent of the poverty level would be covered by Medicaid. The exchanges risk becoming less effective the more they are Balkanized this way.

Presumably, the expanded Medicare program would pay Medicare rates to providers, raising the question of the spillover effects on a health-care system already stressed by a dramatic expansion of Medicaid. Will providers cut costs -- or will they shift them to private insurers, driving up premiums? Will they stop taking Medicare patients or go to Congress demanding higher rates? Once 55-year-olds are in, they are not likely to be kicked out, and the pressure will be on to expand the program to make more people eligible. The irony of this late-breaking Medicare proposal is that it could be a bigger step toward a single-payer system than the milquetoast public option plans rejected by Senate moderates as too disruptive of the private market.

from the Wall Street Journal, 2009-Dec-8:

An Inconvenient Democracy
The EPA aims to bully Congress and business with its carbon ruling.

EPA Administrator Lisa Jackson said yesterday that her ruling that greenhouses gases are dangerous pollutants would "cement 2009's place in history" as the moment when the U.S. began "seizing the opportunity of clean-energy reform." She's right that this is an historic decision, though not to her or the White House's credit, and "seizing" is the right term. President Obama isn't about to let a trifle like democratic consent impede his climate agenda.

With cap and trade blown apart in the Senate, the White House has chosen to impose taxes and regulation across the entire economy under clean-air laws that were written decades ago and were never meant to apply to carbon. With this doomsday machine activated, Mr. Obama hopes to accomplish what persuasion and debate among his own party manifestly cannot.

This reckless "endangerment finding" is a political ultimatum: The many Democrats wary of levelling huge new costs on their constituents must surrender, or else the EPA's carbon police will inflict even worse consequences.

The gambit is also meant to coerce businesses, on the theory that they'll beg for cap and trade once the command-and-control regulatory pain grows too acute—not to mention the extra bribes in the form of valuable carbon permits that Democrats, since you ask, are happy to dispense. Ms. Jackson appealed to "the science" and waved off any political implications, yet the formal finding was not coincidentally announced at the start of the U.N.'s Copenhagen climate conference (see above).

This ruling has been inevitable since at least April and we warned about it during Mr. Obama's campaign, but its cynicism and willfulness still astonish. The political threat is so potent precisely because invoking a faulty interpretation of the 1970 Clean Air Act will expose hundreds of thousands of "major" sources of emissions that produce more than 250 tons of an air pollutant in a year to the EPA's costly and onerous review process. This threshold might be reasonable for traditional "dirty" pollutants (such as NOX) but it makes no sense for ubiquitous carbon, which is the byproduct of almost all types of economic production.

The White House knows this, which is why earlier this fall Ms. Jackson announced a "tailoring rule" that limits this regulation to sources that emit more than 25,000 or more tons a year like coal-fired power plants and heavy manufacturing. Ms. Jackson claims this unilateral rewrite of a statute is a concession, but its real purpose is to dodge a political backlash while still preserving the EPA's ability to threaten business and recalcitrant Democrats.

For now, this decision moves into the courts, and years if not decades of litigation. Yet the decision really is historic: The White House has opened a Pandora's box that will be difficult to close, that is breathtakingly undemocratic, and that the country, if not liberal politicians, will come to regret.

from the Wall Street Journal, 2009-Dec-29, p.A20:

Government Flight From Hell
Uncle Sam has a fix for tarmac delays. Expect more delays.

The Obama Administration is rarely careful about what it wishes for, and right in time for the holidays it has decreed there shall be no more flight delays. If you happen to be reading this editorial stuck in an airport, we sympathize, though the new regulations will almost certainly result in longer waits, more cancellations, higher ticket prices and even greater inconvenience.

Last week the Department of Transportation issued a hard-and-fast rule that carriers will be fined $27,500 per passenger if planes sit on the runway for more than three hours. For a typical 120-seat plane, that works out to about $3.3 million or more per violation. Transportation Secretary Ray LaHood, seizing the opportunity to pander, said at a news conference that "This is President Obama's passenger bill of rights."

It's not as though the airlines are marooning customers for kicks. Delays most often are caused by bad weather that disrupts schedules as they ripple through the system. Particularly in congested hubs like Chicago's O'Hare International and airports in metropolitan New York and New Jersey, problems are exacerbated by the paleolithic U.S. air traffic control system. Once a plane is on the tarmac, it is out of the control of the airline and under the auspices of the Federal Aviation Administration, using 1950s-era radar and voice-based communication.

Given the huge penalties incurred by breaching the arbitrary three-hour deadline, airlines are likely to give up their place in line for takeoff early and taxi back to the gate, meaning that it will take passengers even longer to reach their destinations as the boarding and queuing process starts over. Or they'll err on the side of pre-emptive cancellations in other cities that were depending on the arrival of the aircraft and crew. As scheduling becomes more conservative, prices will rise.

No one will deny that the airline industry often seems dazed and confused. Carriers overload flights during peak hours, and of course there are indefensible screw-ups like the six-hour delay in Rochester, Minnesota, this summer or the nine JetBlue planes frozen to the runway during a 2007 ice storm. But in general, offered the choice between the possibility of imminent clearance in five or 15 minutes, or even an hour, and the certainty of many more hours in the terminal or a night in the airport hotel, we wonder how many passengers really would opt for the latter.

"You know as well as I do that five minutes always extends out to 50 minutes, and almost always to five hours," Mr. LaHood snapped at his announcement when a reporter posed that question. "There's no such thing as five minutes, never, ever." For the record, according to his department's own statistics, over the past 12 months, only 33 flights, out of about 9.6 million flown, were delayed by more than five hours on the tarmac. About 1,500 were delayed by more than three—though that number as a percentage of scheduled departures is down to 1.76 out of 10,000 from 2.92 in 2000.

In other words, serious delays are bad when they happen, but they don't happen very often. And in the age of Yemen-made explosive underwear and emergency landings in the Hudson, perhaps the lingua franca of Mr. LaHood and the media—hostage-taking, torture, imprisonment, "the flight from hell"—should be reserved for more serious use.

The best way to reduce delays would be to modernize the air traffic control system through some kind of public-private operation that could tap capital markets to fund large-scale technology upgrades, rather than relying on taxpayers and the FAA bureaucracy. In the meantime, hassled travelers will have to settle for Mr. Obama's bill of rights, which will make travel even more of a hassle.

from the Wall Street Journal, 2009-Dec-9, by Daniel Henninger:

ObamaJobs: Uncle Sam's Hiring Hall
The U.S. can't have new entrepreneurs and tax them too.

Every serious person should welcome the president's proposals to lift the dormant economy and reduce unemployment. Not because every serious person would agree with them but because they are a clear test of how a left-wing government would run the American economy.

If this works, hats off to them and we become France. If not, Americans may finally dump left-wing economics into the ash heap of history, starting next November and then in the next presidential election, which can't come soon enough.

The first purpose of the jobs proposals Mr. Obama announced Tuesday—TARP money for Main Street, tax credits for new hires, more infrastructure spending and the weird weatherization program—is to bail out Democratic incumbents. The underlying strength and resilience of the American economy may yet produce enough headline growth the next 11 months to slow the panic over employment levels by next fall.

No Democratic president, though, can just say, "I'm doing this to save the Pelosi majority and to protect the state and local jobs of Andy Stern's dues payers and party regulars in the Service Employees International Union." Mr. Obama's saving grace is that no matter how political his initiatives, the reasons he offers for what he's doing generally do describe what is at stake.

And so he did at the jobs summit: "We've got the most entrepreneurial spirit in the world, and we've got some of the most productive workers in the world. And if we get serious, then the 21st century is going to be the American century, just like the 20th century."

Too true. This global competition is what lies beyond the politics of next November's employment rate. Still, one must ask: Can weatherization save us from a billion Chinese workers?

Apologies for the glibness, but I don't see how one can sort through the Obama economic policies and conclude that we have a strategy for sending America's best and brightest entrepreneurs onto the battlefields of Asia. It looks instead like we're going to spend a generation looking for jobs in Uncle Sam's hiring hall of targeted tax credits and industry-specific subsidies.

Everyone in politics genuflects in the direction of the job-creation powers of "entrepreneurs" and their ideas. But the generation of Democrats who rose to power with the Obama presidency and the current House majority don't really trust or much like real entrepreneurs.

Entrepreneurship, the kind that creates industries and jobs on the scale we'll need in the next century, is about two things: Ideas that spring randomly from some slightly crazed dreamer's head; and worse, they often get filthy rich if the dreams are real. The left likes neither.

In their country, government guides capital to ideas prewashed for goodness. As to letting guys get rich, we know about that problem. Hating it isn't just political. It's cultural.

But unless these Democrats can reverse habits of history dating to the Renaissance, entrepreneurship's new men not only will build businesses and create new jobs, they'll still tend to measure their self-worth with outsized yachts, mansions and other crimes against prevailing norms of taste. The new Democrats bear a visceral antipathy toward these people, whom they've reduced to the lumpen "Republicans."

Barack Obama campaigned for a year against "the top 1%" and "the wealthiest." It sounded like more than economics to me. But a nation can't have entrepreneurs and eat them, too. Asia is overflowing with rich entrepreneurs. Google "China's auto industry." They have more new auto manufacturers than you can count. If the U.S. has any hope of competing long term with this rising force, it will have to let some Americans get as rich as nouveau riche Asians. This presidency won't do that.

At the jobs summit, Mr. Obama said "I want to hear from CEOs what's holding back our business investment." Really?

How about the world's highest corporate tax rate? How about the 5.4% health-care surtax on top of the expiring Bush tax cuts, which will push the top marginal individual rate, paid at the outset by many entrepreneurs, well over 40%?

Set aside income taxes as the unransomed hostages of progressive dogma. Justify this: The Senate health-reform bill imposes a $4 billion annual excise tax on medical devices and diagnostic equipment. In a slow-innovation economy, which is what we have now, medical and diagnostic miracles sit at the intersection of American science, technology, education and IQ. That stuff defines American entrepreneurship and ingenuity. If the Obama Democrats will tax these people, they'll tax anything that produces income, no matter how innovative or job-creating.

The Obama bet is that the U.S. can be a Franco-German welfare state, with a mammoth public sector, and still compete with China, India, Brazil, Korea and the rest. This is a pipedream. We are going to spend four years treading water. If we tread quickly enough, we may get enough growth to save the Democrats, but not the nation.

from the Wall Street Journal, 2009-Oct-31, p.A19, by Peggy Noonan:

We're Governed by Callous Children

The new economic statistics put growth at a healthy 3.5% for the third quarter. We should be dancing in the streets. No one is, because no one has any faith in these numbers.

Waves of money are sloshing through the system, creating a false rising tide that lifts all boats for the moment. The tide will recede. The boats aren't rising, they're bobbing, and will settle. No one believes the bad time is over. No one thinks we're entering a new age of abundance. No one thinks it will ever be the same as before 2008.

Economists, statisticians, forecasters and market specialists will argue about what the new numbers mean, but no one believes them, either. Among the things swept away in 2008 was public confidence in the experts. The experts missed the crash. They'll miss the meaning of this moment, too.

The biggest threat to America right now is not government spending, huge deficits, foreign ownership of our debt, world terrorism, two wars, potential epidemics or nuts with nukes. The biggest long-term threat is that people are becoming and have become disheartened, that this condition is reaching critical mass, and that it afflicts most broadly and deeply those members of the American leadership class who are not in Washington, most especially those in business.

It is a story in two parts. The first: "They do not think they can make it better."

I talked this week with a guy from Big Pharma, which we used to call "the drug companies" until we decided that didn't sound menacing enough. He is middle-aged, works in a significant position, and our conversation turned to the last great recession, in the late mid- to late 1970s and early '80s. We talked about how, in terms of numbers, that recession was in some ways worse than the one we're experiencing now. Interest rates were over 20%, and inflation and unemployment hit double digits. America was in what might be called a functional depression, yet there was still a prevalent feeling of hope.

Here's why. Everyone thought they could figure a way through. We knew we could find a path through the mess. In 1982 there were people saying, "If only we get rid of this guy Reagan, we can make it better!" Others said, "If we follow Reagan, he'll squeeze out inflation and lower taxes and we'll be America again, we'll be acting like Americans again." Everyone had a path through.

Now they don't. The most sophisticated Americans, experienced in how the country works on the ground, can't figure a way out. Have you heard, "If only we follow Obama and the Democrats, it will all get better"? Or, "If only we follow the Republicans, they'll make it all work again"? I bet you haven't, or not much.

This is historic. This is something new in modern political history, and I'm not sure we're fully noticing it. Americans are starting to think the problems we are facing cannot be solved.

Part of the reason is that the problems—debt, spending, war—seem too big. But a larger part is that our government, from the White House through Congress and so many state and local governments, seems to be demonstrating every day that they cannot make things better. They are not offering a new path, they are only offering old paths—spend more, regulate more, tax more in an attempt to make us more healthy locally and nationally. And in the long term everyone—well, not those in government, but most everyone else—seems to know that won't work. It's not a way out. It's not a path through.

And so the disheartenedness of the leadership class, of those in business, of those who have something. This week the New York Post carried a report that 1.5 million people had left high-tax New York state between 2000 and 2008, more than a million of them from even higher-tax New York City. They took their tax dollars with them—in 2006 alone more than $4 billion.

You know what New York, both state and city, will do to make up for the lost money. They'll raise taxes.

I talked with an executive this week with what we still call "the insurance companies" and will no doubt soon be calling Big Insura. (Take it away, Democratic National Committee.) He was thoughtful, reflective about the big picture. He talked about all the new proposed regulations on the industry. Rep. Barney Frank had just said on some cable show that the Democrats of the White House and Congress "are trying on every front to increase the role of government in the regulatory area." The executive said of Washington: "They don't understand that people can just stop, get out. I have friends and colleagues who've said to me 'I'm done.'" He spoke of his own increasing tax burden and said, "They don't understand that if they start to tax me so that I'm paying 60%, 55%, I'll stop."

He felt government doesn't understand that business in America is run by people, by human beings. Mr. Frank must believe America is populated by high-achieving robots who will obey whatever command he and his friends issue. But of course they're human, and they can become disheartened. They can pack it in, go elsewhere, quit what used to be called the rat race and might as well be called that again since the government seems to think they're all rats. (That would be you, Chamber of Commerce.)

***

And here is the second part of the story. While Americans feel increasingly disheartened, their leaders evince a mindless . . . one almost calls it optimism, but it is not that.

It is a curious thing that those who feel most mistily affectionate toward America, and most protective toward it, are the most aware of its vulnerabilities, the most aware that it can be harmed. They don't see it as all-powerful, impregnable, unharmable. The loving have a sense of its limits.

When I see those in government, both locally and in Washington, spend and tax and come up each day with new ways to spend and tax—health care, cap and trade, etc.—I think: Why aren't they worried about the impact of what they're doing? Why do they think America is so strong it can take endless abuse?

I think I know part of the answer. It is that they've never seen things go dark. They came of age during the great abundance, circa 1980-2008 (or 1950-2008, take your pick), and they don't have the habit of worry. They talk about their "concerns"—they're big on that word. But they're not really concerned. They think America is the goose that lays the golden egg. Why not? She laid it in their laps. She laid it in grandpa's lap.

They don't feel anxious, because they never had anything to be anxious about. They grew up in an America surrounded by phrases—"strongest nation in the world," "indispensable nation," "unipolar power," "highest standard of living"—and are not bright enough, or serious enough, to imagine that they can damage that, hurt it, even fatally.

We are governed at all levels by America's luckiest children, sons and daughters of the abundance, and they call themselves optimists but they're not optimists—they're unimaginative. They don't have faith, they've just never been foreclosed on. They are stupid and they are callous, and they don't mind it when people become disheartened. They don't even notice.

from City Journal, 2009-Nov-23, by Steven Greenhut:

Plundering California
Public-sector unions have brought the state to its knees.

The economy is struggling, the unemployment rate is high, and many Americans are struggling to pay the bills, but one class of Americans is doing quite well: government workers. Their pay levels are soaring, they enjoy unmatched benefits, and they remain largely immune from layoffs, except for some overly publicized cutbacks around the margins. To make matters worse, government employees—thanks largely to the power of their unions—have carved out special protections that exempt them from many of the rules that other working Americans must live by. California has been on the cutting edge of this dangerous trend, which has essentially turned government employees into a special class of citizens.

When I recently appeared on Glenn Beck’s TV show to discuss California’s dreadful fiscal situation, I mentioned that in Orange County, where I had been a columnist for the Orange County Register, the average pay and benefits package for firefighters was $175,000 per year. After the show, I heard from viewers who couldn’t believe the figure, but it’s true. Firefighters, like all public-safety officials in California, also receive a gold-plated retirement plan: a defined-benefit annual pension that offers 90 percent or more of the worker’s final year’s pay, guaranteed for the rest of his life (and the life of his spouse).

Government employees use various scams to boost their already generous benefits, which include fully paid health care and cost-of-living adjustments. The Sacramento Bee coined the term “chief’s disease,” for example, to refer to the 82 percent (in 2002) of chief’s-level employees at the California Highway Patrol who discovered a disabling injury about one year before retiring. That provides an extra year off work, with pay, and shields 50 percent of their final retirement pay from taxes. Most of these disabilities stem from back pain, knee pain, irritable bowel syndrome, and the like—not from taking bullets from bad guys. The disability numbers soared after CHP disbanded its fraud unit.

As I document in my new book, Plunder!, government employees of all stripes have manipulated the system to spike their pensions. Because California bases pensions for employees on their final year’s salary, some workers move to other jurisdictions for just that final year to increase their pay and thus the pension. Even government employees convicted of on-the-job crimes continue to collect benefits. Municipalities have adopted Defined Retirement Option Plans, or DROPs, in which the employee earns his salary and his full defined-benefit retirement pay at the same time, with the retirement pay going into an account payable upon actual retirement. And as average Americans work longer to sustain themselves, public employees can retire in their early fifties with their plush benefits.

The old deal seemed fair: public employees would earn lower salaries than Americans working in the private sector, but would receive a somewhat better retirement and more days off. Now, public employees get higher average pay, far higher benefits, and many more days off and other fringe benefits. They have also obtained greatly reduced work schedules, thus limiting public services even as pay and benefits shoot ever higher. The new deal is starting to raise eyebrows, thanks to efforts by groups such as the California Foundation for Fiscal Responsibility, which publishes the $100,000 Club, a list of thousands of California government retirees with six-figure, taxpayer-guaranteed incomes. But even in these tough times, public employees continue to press city councils for retroactive pension increases, which amount to gifts of public funds for past services. Officials fear the clout that these unions, especially police and fire unions, wield on Election Day.

The story doesn’t end with the imbalance in pay and benefits. Government workers also enjoy absurd protections. The Los Angeles Times did a recent series about the city’s public school district, which doesn’t even try to fire incompetent teachers and is seldom able to get rid of those credibly accused of misconduct or abuse. Misbehaving teachers are sometimes kept from teaching, but they may spend years, even a decade, getting paid while they fight attempts to fire them. A state law referred to as the Peace Officers Bill of Rights, along with excessive privacy restrictions, likewise makes it nearly impossible to fire police officers who abuse their authority.

The media have finally started to take notice, largely because of some impossible-to-ignore financial excesses, particularly the tens of billions of dollars in “unfunded liabilities”—that is, future debt—run up by politicians more interested in pleasing union officials than in looking after the public’s finances. News reports have also focused on scandals at CalPERS, the California Public Employees’ Retirement System, which has faced record losses after making risky leveraged investments in bizarre real-estate deals. (The government pension system encourages such risky behavior: with defined-benefit systems, union members stand to gain if the investments go well, while taxpayers shoulder the burden if they don’t.) Meanwhile, the Los Angeles Times reported on a politically connected insider who received $53 million in finder’s fees from CalPERS, raising questions of pay-to-play deals.

But the real scandal is a two-tier society where government workers enjoy benefits far in excess of those for whom they supposedly work. It’s past time to start cleaning up the mess by reforming retirement systems and limiting the public unions’ power. If we don’t, California’s financial problems will become insurmountable.

Steven Greenhut is the author of Plunder! How Public Employee Unions Are Raiding Treasuries, Controlling Our Lives And Bankrupting The Nation. He is the director of the Pacific Research Institute’s Journalism Center in Sacramento and was a longtime columnist for the Orange County Register in Santa Ana.

from the Wall Street Journal's Political Diary, 2009-Dec-7, by John Fund:

TARP Trap

If you thought TARP spending was already problematical, wait till you see what Congress has in mind for it next. One idea for money originally slated as temporary support for the banks is to disburse it permanently to voters looking for jobs.

This is supposed to help "recovery" but is likely to do the opposite. "When you subsidize something, you get more of it. Extending unemployment benefits is guaranteed to leave many more people unemployed for many more months," notes Alan Reynolds of the Cato Institute. "Until benefits are about to run out, many of the long-term unemployed are in no rush to make serious efforts to find another job -- or to accept job offers that may involve a long commute, relocation or disappointing salary and benefits." Another dubious idea gaining favor at the White House is offering wage subsidies or tax credits to companies that keep people employed or hire new workers -- a concept tried for decades in Europe. In Germany, as many as 1.5 million workers work half-time but draw 90% of a full-time salary courtesy of government subsidies to their employers. In Sweden, workers for years saw 45% of their salary paid by government. Such "layoff pay" is horribly expensive and inefficient, however, so Sweden, the original welfare state, ended the program in 1995 saying it had done little to create new jobs and only delayed needed restructuring of business.

Senior White House adviser Valerie Jarrett told reporters at last week's presidential job summit that she wants to hear from people with different perspectives. "I would say to those critics, we welcome your ideas," Ms. Jarrett said. "We embrace all good ideas and I think critics should stop saying what won't work and come forward with what will work." Well, one proposal is to cut the Social Security payroll tax in half for a period to spur new employment. Another is to approve pending free-trade agreements with Colombia, South Korea, and Panama that have stalled on Mr. Obama's watch. Recently, the White House acknowledged that increasing U.S. exports by just 1% would create more than 250,000 jobs.

But those kinds of ideas don't sit well with the union officials who dominated Mr. Obama's jobs summit. Instead, look for more polices borrowed from the rigid labor markets of Europe.

from the Wall Street Journal, 2009-Nov-11, p.A20:

America Leaves Itself Behind
A world of trade deals without the U.S.

President Obama heads for Asia this week to talk about U.S. economic recovery and reform, and one theme that we expect he'll hear from Asian leaders is this: America is leaving itself behind as the rest of the world tries to liberalize trade.

The numbers tell the story. At least 266 bilateral or regional trade deals are in force, according to the World Trade Organization, and there are roughly 100 more of which the WTO has not yet been formally informed. The U.S. is a party to only five of the 64 trade pacts that have taken effect since 2005—with Australia, Morocco, Bahrain, Oman and Peru.

In contrast, eight of those 64 deals involve the European Union (plus a round of EU expansion) and Japan has signed nine. Overall the U.S. has trade deals with only 17 countries including Canada and Mexico under Nafta. The EU has struck 29 deals on trade ranging from customs unions to larger free-trade agreements with 40 economies.

Of the deals the WTO knows about, an average of seven took effect each year in the five years after the WTO's founding in 1995. For 2004-2008, the annual average rose to 15. Another 12 have kicked in this year. New Zealand and Malaysia signed a pact last week, for instance, and China and India are in talks. Oh, and there's also the newly signed EU-Korea trade deal, and the one signed last year between Canada and Colombia.

These deals are proliferating for many reasons. Some countries are losing patience with the Doha round of global trade talks that has dragged on for eight years. Others view bilateral deals as a way of liberalizing beyond what Doha would accomplish—including areas like intellectual-property protection. These deals can also firm up alliances or build political influence, which is one reason China is aggressively pursuing trade deals with its neighbors.

The danger is that U.S. companies could find themselves on the wrong side of deals negotiated among other countries. The EU-South Korea pact, for example, will tear down almost all remaining tariff barriers between the two sides. It will also address such technical barriers as the excessive safety standards that Seoul has long used to block imports, and it will open Korea to European services. The U.S. has long tried to address these hurdles so American companies could gain better access to the world's 13th-largest economy. The EU is now beating Washington to the punch—largely by copying the trade deal the Bush Administration negotiated with Seoul but that Congress refuses to ratify.

The same holds for Canada's deal with Colombia. That deal eliminates Colombia's average 12% tariffs on nonagricultural goods from Canada; U.S. exporters will still have to pay those tariffs even as Colombians keep tariff-free access to the U.S. under an earlier agreement. Over time Canadian farmers will gain tariff-free access to Colombia for most of their agricultural exports while farmers in Iowa or Nebraska will be stuck with tariffs of between 5% and 80%.

Bilateral trade deals are far from ideal as a way to promote global growth. Far better for governments to lower their own trade barriers unilaterally to all comers, or for all governments to sign a multilateral deal like the Doha round. A complex web of bilateral and regional trade deals can saddle businesses with the costs of complying with multiple sets of rules. This "spaghetti bowl" approach also distorts economies to the extent that businesses make trade and investment decisions based more on where they can get trade preferences than on the highest return on capital.

But when the U.S. sits on the sidelines, the rest of the world is going to find its own trading way, however imperfect. The nearby table shows some of the benefits U.S. companies will be missing.

A start to getting the U.S. back in the game would be for Congress to ratify the pending deals with South Korea, Colombia and Panama. Mr. Obama and U.S. Trade Representative Ron Kirk need to rethink their emphasis on trade "enforcement," which is code for introducing higher barriers, and instead renew the push for more deals. Mr. Obama could also become a leading voice pushing for progress on Doha. Especially as other countries expand their own trading opportunities, the costs of Washington dithering are growing every day.

from the Wall Street Journal, 2009-Dec-6:

CEOs and ObamaCare
An internal revolt at the Business Roundtable over support for ObamaCare.

One lesson that Democrats learned from the failure of HillaryCare in 1994 is that they had to buy the silence, if not the outright support, of the business class. They've done this brilliantly by peddling the illusion that ObamaCare will "lower costs" for employers.

But slowly as the legislative details become clear, it is dawning on executives of businesses large and small that reform is boiling down to a huge tax increase to finance a gigantic new entitlement. The cost and quality of care are afterthoughts that will both suffer, as a growing roll of medical experts have been writing on these pages.

The tragedy is that ObamaCare is not inevitable and far better reforms are still possible—but only if the current version is defeated and Democrats are forced back to the drawing board. With only a few exceptions, drug makers and health-care providers have shown that their priority is rent-seeking from government, which means that any last-minute push back will have to come from the other six-sevenths of the economy.

The Chamber of Commerce and National Federation of Independent Business have finally figured out they were being taken for a ride. And now even the Business Roundtable, the association of CEOs from the largest companies, is engaged in a furious internal debate about the way forward. The Roundtable has been vaguely supportive but restive. But last week Roundtable president John Castellani was informed in a contentious conference call that many of his members will quit if the organization isn't more assertive against ObamaCare.

What the executives leading the revolt understand is that the current reforms bear no resemblance to the more rational system the Roundtable favors. As Ivan Seidenberg of Verizon accurately put it in September, "The problem with the health-care market in this country is that it doesn't really function as a market—leaving major consumer needs unmet, costs unchecked by competition, and basic practices untouched by the productivity revolution that has transformed every other sector of the economy."

Yet in Congress the market-based policies that could encourage such changes have been ignored, dumped or converted into timid pilot programs. Instead of increasing the competition and consumer choice that would result in better value and reduce the annual double-digit cost increases in health spending, ObamaCare will simply expand the status quo and make it more expensive.

Roundtable companies sponsor health insurance for some 35 million employees. Not only would their wages continue to be depressed as costs continue to accelerate, but large and unpredictable costs would remain on corporate balance sheets.

Most Roundtable members also self-insure under the 1974 law known as Erisa that allows large corporations to offer national insurance largely free of regulatory interference. This flexibility will be undermined with mandated benefit packages and limits on employer ability to innovate with consumer-directed health plans. The most powerful Democrats simply have no appreciation for—or interest in—how a decentralized approach like Erisa could make health care more affordable and result in the coverage expansions that corporate America generally favors.

The larger issue for business is the productivity and competitiveness of the U.S. economy. Democrats are about to pass the largest entitlement expansion in more than four decades when federal spending is already at unprecedented levels. The "pay or play" tax on employers and the hike in payroll taxes on top earners in the House and Senate bills are merely teaser rates. The long-term pressures created on the federal fisc would require enormous tax hikes that would depress capital investment and economic growth, to say nothing of the Roundtable's priority of reducing U.S. corporate tax rates that are among the world's highest.

The tendency among business groups is usually to conciliate and speak the language of consensus—especially with Democrats running all of Washington and able to do great harm to anyone who doesn't cooperate. And no doubt the Roundtable is hearing from the CEOs of companies like Pfizer, Wal-Mart and General Electric that are deeply invested in more government control of the economy. Other members favor making marginal improvements to a faulty bill, on the theory that it's a fait accompli anyway.

Yet if the Roundtable in particular and business in general would invest their advertising dollars, lobbying expertise and prestige into a concerted campaign, there is still a chance to move public opinion enough to stop this destructive bill. That would force the Democrats on the left who are driving this process to work with moderates in both parties to focus on meaningful cost control and better value.

Democrats have defined success as dragging any bill into law as quickly as possible, no matter how damaging, while leaving the mess it creates to be cleaned up in the future once the entitlement is entrenched and higher taxes are inevitable. The only way to prevent that outcome is to force them to start over.

The choice isn't between the status quo with all its flaws and ObamaCare. It's between ObamaCare, and a better reform alternative.

from City Journal, 2009-Autumn, by Claire Berlinski:

Government Motors 1975
America should learn from Britain’s disastrous takeover of its biggest auto company.

After the Second World War, the United Kingdom’s newly elected Labour government resolved to build of Britain a New Jerusalem. It nationalized the commanding heights of the economy and inaugurated the cradle-to-grave welfare state. By the 1970s, the UK faced an economic crisis unrivaled since the Great Depression. Shabby and hopeless, Britain had become, in Henry Kissinger’s words, a “tragedy” of a nation, reduced to “begging, borrowing, stealing.”

British Leyland, Britain’s largest automaker, faced bankruptcy in 1975. Fearing that its collapse would leave a million workers unemployed, the Labour government nationalized it. The company remained a ward of the state for 13 years. During that time, the British taxpayers invested 11 billion pounds—the inflation-adjusted equivalent of $22 billion today—in a company whose only sign of life was a willingness to spend that money. Though the British economy recovered, British Leyland did not.

If this story sounds troublingly familiar to you, you appear to be nearly alone. Few of the policymakers currently nationalizing the American auto industry seem to remember the British experience, and fewer still seem to have learned anything from it.

In 1950, Britain manufactured 52 percent of the world’s exported vehicles. But that was chiefly because Americans wanted more cars than their own factories could yet produce, and the French and German industrial sectors had been destroyed. Britain’s car plants, anachronistic before the war, remained anachronistic after it. Only the luxury brands, such as Rolls-Royce and Jaguar, were well designed, and even the men who designed them could not sense the industry’s future: attractive, affordable, mass-market vehicles. The success of the British labor movement had, moreover, yielded a workforce widely known to be strike-prone, careless, and lazy. The 1959 movie I’m All Right Jack succeeded precisely because Peter Sellers’s portrayal of work-shy trade-union shop steward Fred Kite was so familiar. By the late 1960s, France, Germany, and America had displaced British exports from the world market.

If the facts were clear enough, so was the Labour government’s eagerness to ignore them. In 1967, the devout socialist Tony Benn, chairman of the government’s Industrial Reorganisation Committee, determined to improve the automobile industry by asking Britain’s two biggest carmakers, Leyland Motors and British Motor Holdings, to merge. Leyland Motors owned Triumph and Rover; British Motor Holdings owned Austin, Morris, MG, and Jaguar. Britain’s foreign competitors had large car companies, Benn reasoned, so Britain, too, should have a large car company. Size, he believed, would suffice in the absence of skill, a delusion common to lovers and labor leaders alike. Benn further imagined that British Leyland, still relatively successful, could use its capital and expertise to revive the severely anemic British Motor Holdings.

The companies agreed, and British Leyland was born. It held 40 percent of the UK car market and within five years lost nearly a quarter of it.

Why? The early seventies saw ever more intense competition from continental auto manufacturers, as well as the rise of the Asian car tigers. Leyland’s management was inflexible and slow to adapt. The group had too many companies under its control, and they made similar, competing, outdated cars. The oil-price shock didn’t help. Neither did Leyland’s militant union. Led by Derek Robinson, an unapologetic Communist known as “Red Robbo,” the union embarked on a series of ruinous disputes with management, regularly bringing production to a standstill.

Leyland’s factories were overmanned, its equipment old, its cars ugly. Antique collectors with a keen sense of irony now cherish the dumpy Austin Allegro, known at the time as the Flying Pig. Available in beige, brown, and wilted-lettuce green, it leaked, and its rear windows spontaneously popped out. Its proudest design innovation was its squarish steering wheel. While Leyland was busy inventing the world’s first square wheel, the Germans were building the Volkswagen Golf, a stylish, family-friendly, fuel-efficient hatchback that quickly became one of the best-selling cars in history.

By 1974, the global market share of Britain’s auto exporters had dropped to sixth place. Leyland began begging for a loan, and the Labour government forked over 50 million pounds. (The bailout prompted other carmakers to follow suit, notably Chrysler UK, which the government later lent 162.5 million pounds.) By 1975, however, it was clear that the Leyland loan would not be enough to save the company.

Sir Don Ryder, head of the newly created National Enterprise Board (NEB)—the very names of these government bodies are harbingers of economic doom—undertook an analysis of British Leyland. His 1975 report contained the excuses for failure that such reports generally offer, among them “a sharp rise in the price of oil relative to other goods,” a “cutback in economic growth and consumer demand in the main industrial countries,” and “long-term anxieties about the environment and congestion.” The words notably absent were “crummy, overpriced cars that people don’t want to drive”—and unfortunately, this was the key problem.

Unwilling to affirm the obvious, the report demanded the inevitable: urgent government action. “Very large sums would be needed from external sources to finance the action required to make BL a viable business,” the Ryder report said. These “very large sums” amounted to 1.2 percent of GDP, and the “external sources,” the report made clear, were the taxpayers: “In our view, a very large part of the funds can only be provided by the Government.” Naturally: no private investor would be so stupid as to sink his money into a failing company. Why, then, sink anyone’s money into British Leyland? Because of its “importance to the national economy.”

The government, Ryder cautioned, shouldn’t simply hand Leyland the cash and bow out; it should ensure that the funds were spent wisely by, for example, choosing the company’s new managers and setting its productivity benchmarks. Note the suppressed premises behind these recommendations: that government ministers are better at selecting an industry’s managers than industrialists are, and that government ministers are able to define and measure productivity through various benchmarks. The former is doubtful and the latter false. The only truly relevant measure of productivity is consumer choice: if people don’t want to buy a company’s products at the company’s price, it may have been busy, but it has not been productive. This point escaped all concerned.

Not yet in power but already in control of the Conservative Party, Margaret Thatcher declared her hostility to the Ryder report. She acknowledged the significance of Leyland to the British economy as an employer but warned that no amount of taxpayer money could solve the fundamental problem. “Unless we can ensure a flourishing and competitive industry capable of producing a product at a price people will pay,” she said, “it is not only the future of the British Leyland that is at stake, but the very standards and standing of the British nation itself. . . . Our solution is not to go on putting massive subsidies into failure.”

Ryder’s proposals for “vast and unprecedented financial support,” Thatcher continued, deserved “particularly critical scrutiny . . . at a time of general economic crisis.” The crisis had been invoked as the justification for the bailout, but Thatcher failed to see the logic. If the economy was in crisis, she held, the government should waste less of the taxpayers’ money, not more.

Harold Wilson, the Labour prime minister, argued that the problem—not only with Leyland but with the entire British economy—was an insufficiency of government spending: “a total inadequacy of industrial investment, both to create capacity and, above all, to advance modernization.” Not so, said Thatcher. The “sheer size” of the National Enterprise Board, she warned, would “surely defeat any attempt at really effective management or adequate Parliamentary accountability. British Leyland—or should we call it British Wasteland—employing 170,000 men, will be just one of the NEB’s chicks. . . . Anyone with less talent than a reincarnated consortium of Henry Ford, Attila the Hun, and Immanuel Kant will fall down on the job.”

History proved Thatcher right.

Ignoring Thatcher’s objections, the NEB took control of British Leyland in 1975. In fact, it went beyond Ryder’s recommendations—pumping money into the company year after year, busily deciding where new plants would be built, and taking a hand in how cars would be designed. The cars produced under the NEB’s supervision were among the worst ever made. Leyland’s 30.8 percent of the UK market—already down, you will recall, from 40 percent at the 1967 merger—sank to 18.2 percent by 1980.

The nationalization had been justified on the grounds of preserving employment, so Leyland’s managers could not readily make decisions, such as concentrating production in fewer factories with a smaller workforce, that might have increased economies of scale. In theory, the NEB was supposed to monitor the company’s progress, but in practice, there was no clear command structure, and it was unclear who was in charge. For a time, Ryder himself was making the key day-to-day business decisions. The managers of the merged companies, suspicious of each other, refused to share vehicle platforms.

Industrial relations went from bad to worse. In 1978, Red Robbo called 523 walkouts—yes, really—at the company’s Longbridge plant. The following year, Leyland’s workers struck for weeks after losing a pay raise for not meeting productivity targets. No one had ever told them what the targets were in the first place.

Leyland’s cars remained outdated, unreliable, and ugly. Its larger models couldn’t compete with those made by Nissan and Toyota; the smaller ones couldn’t compete with those made by Honda. “Only the British,” it was said, “could call that car a Triumph.” There is a world of tragedy in that joke. It would have made no sense a century earlier, when Britain was inarguably the world’s leading industrialist.

Keith Joseph, Thatcher’s intellectual mentor, had laid out the case against intervention in British Leyland in 1976. The maximization of employment was an entirely legitimate government objective, he acknowledged. But if money was taken from taxpayers to finance failed firms, those taxpayers could not invest it in businesses and industries likelier to create wealth and jobs. “By subsidizing the least efficient and most capital-intensive firms . . . at the expense of industry as a whole, the Government could not help decreasing employment many times over in the more efficient and basically healthy small and medium private firms, which provide far more employment per unit of capital,” Joseph wrote. “For every job preserved in British Leyland, Chrysler and other foci of highly paid outdoor relief, several jobs are destroyed up and down the country.”

Thatcher agreed. Today, her name is synonymous with privatization and free markets. So it’s all the more surprising that after coming to power in 1979, she plowed more money into Leyland. That year, the company produced yet another plan for corporate restructuring and asked for yet another handout. Defying all her own wise arguments, Thatcher caved, handing over nearly a billion pounds, and continued to hand over money, year after year. In the Commons, she justified the rescue schemes just as her predecessor had. “At a time of world recession, which has hit Britain very severely, we have higher unemployment than we’ve had in the postwar period,” she said. “I could simply not have let [Leyland] go out of being. . . . The total effect of the collapse would have been colossal.”

Why was Leyland the exception to Thatcher’s otherwise clearly principled policies? It’s simple: she needed the votes. Leyland posed a particularly vexing electoral problem for the Tory Party, according to a 1976 memo between two men who would later become significant figures in Thatcher’s government, Sir Geoffrey Howe and Michael Heseltine. “A very large number of seats, in the West Midlands area, must depend on the votes of British Leyland workers,” wrote Howe. Those votes were in crucial swing constituencies. In the end, recalls Thatcher in her memoirs, “the political realities had to be faced.”

Leyland stayed on the government books until 1988, nearly the close of Thatcher’s time in power, inhaling taxpayer money and exhaling cars that no one wanted. Perhaps the only positive thing that one can say about Thatcher’s policy is that by the time the company shut its doors for good, the economy was stronger and could provide more jobs for those who were unemployed. Still, much the same effect could have been obtained by allowing the company and its component industries to go under while paying their workers to bang rocks together for a decade. Such a policy would at least have been honest.

Ultimately, Thatcher shoved the Leyland albatross into private hands. MG was sold to a Chinese group. Ford bought Jaguar and Land Rover in the 1990s, failed to make a profit from them, and foisted them on India’s Tata Motors. What was left of British Leyland became MG Rover; it passed from buyer to buyer and was sold to BMW, which handed it off to Phoenix Venture Holdings for ten pounds. It went bankrupt in 2005, an outcome that billions and billions had been spent trying to prevent.

In autumn 2008, with the U.S. economy facing a crisis commonly viewed as the most severe since the Great Depression, the chief executives of General Motors, Ford, and Chrysler—all hard-hit by rising oil prices and aggressive competition from overseas carmakers—begged Washington for help. The Bush administration offered them $17.4 billion in emergency loans. Congress balked, so President Bush tapped the $700 billion Troubled Assets Relief Program for the funds, though that was never what the money was intended for. Earlier this year, President Obama expanded the TARP to guarantee warranties issued by Chrysler and GM. Ford, Volkswagen, Nissan, Honda, and Mitsubishi have their palms out, too.

Meanwhile, the Department of Energy is lending automakers another $25 billion to speed the transition to more fuel-efficient vehicles. The Obama administration’s justification for these loans sounds just like Wilson’s: they will create capacity and advance modernization. (Notice the assumption that governments are in a better position than individual citizens not only to decide what “modernization” is but to advance it.) The Treasury has also coughed up $5 billion to keep companies that supply auto parts out of bankruptcy; the suppliers have asked for $8 billion more. Cash for Clunkers—there goes another $3 billion. The total costs of the auto bailout are nearing $110 billion, most of it in loans that nobody expects ever to be repaid.

The government has assured us that it has no intention of going into the car business. It has, of course, gone into the car business. After GM burned through $10 billion in taxpayer cash in the first three months of this year and then went bankrupt, Obama promptly offered it another $30 billion loan. The government now owns GM—or 60 percent of it, anyway. “We are acting as reluctant shareholders because that is the only way to help GM succeed,” the president explained. The implication is drearily familiar: only the government can do it because no private investor would be so stupid as to sink his money into a company that just declared bankruptcy.

In March, Obama rejected the reorganization plans of GM and Chrysler. He forced out GM’s chairman and told Chrysler to join forces with Fiat. He pressured GM to keep its headquarters in Detroit. The federal government is negotiating with GM and with officials in Michigan, Tennessee, and Wisconsin to determine where a new small-car plant should be located. “We cannot, and must not, and we will not let our auto industry simply vanish,” Obama declared. “This industry is like no other—it’s an emblem of the American spirit, a once and future symbol of America’s success.”

That’s exactly what British politicians said about Leyland.

And why is the Obama administration pursuing these ruinous policies? Presumably because the United Auto Workers are the Democratic Party’s electoral base. They spent millions electing Obama. Car manufacturers are located in crucial swing states. The political realities have to be faced.

Defenders of the American bailout familiar with the story of Leyland—and this is a very small set—argue that the analogy is flawed. The UAW, they note, isn’t run by Communists; it has made large concessions, agreeing to give up cost-of-living raises, performance bonuses, and one paid holiday. It has also agreed to suspend tuition and dental assistance and to reduce prescription-drug coverage. But Leyland’s unions ultimately made concessions, too, and you don’t have to call 523 strikes in a year to drive up the cost of labor so sharply that your product becomes more expensive than your competitors’. That, unfortunately, is all you need to do to fail.

Even after their compromises, UAW members and retirees still earn a good deal more than the average private-sector worker, and they still have better health coverage, better retirement plans, and more paid vacation. Above all, they still cost more to employ and to retire than the employees of rival carmakers, domestically and abroad. The cuts that the UAW has agreed to will be put into place gradually as workers retire. It is very unlikely that costs will fall fast enough to restore these companies to solvency.

Labor costs are only one point of analogy, and not even the most important. Like Leyland, GM owns too many poorly coordinated factories, operates brands that compete against one another, sells nearly identical cars under different names, seems unable to plan for or adapt to fluctuations in the price of oil, and is managed by people who suspect, deep down, that they will not be allowed to fail.

British Leyland, to judge from the news, has disappeared down the world’s memory hole. We’re nonetheless repeating an experiment that has been conducted already, and its results are known to anyone who cares to consult them. The experiment was a failure—and there is no good reason to think that it will succeed the second time around.

Claire Berlinski, a contributing editor of City Journal, is an American journalist who lives in Istanbul. She is the author of Menace in Europe: Why the Continent’s Crisis Is America’s, Too and There Is No Alternative: Why Margaret Thatcher Matters.

from the Wall Street Journal, 2009-Dec-3, by Richard K. Lester:

The High Costs of Copenhagen
What Obama's pledge to reduce emissions by 83% would mean in practice.

When President Obama goes to the Copenhagen climate change summit next week, he is expected to once again declare that the U.S. will reduce its carbon emissions 83% by 2050. Even though no legally binding agreement is expected, what Mr. Obama says in Denmark will define the U.S. position in subsequent international negotiations. He will not say how the cuts will be accomplished. For Americans, the details are worth knowing.

Annual U.S. carbon-dioxide emissions currently average about 5.5 tons of carbon per person. Achieving Mr. Obama's goal would mean reducing this to 0.63 tons per person by midcentury, taking expected population growth of just under 1% per year into account. If the rest of the world were to do likewise, global carbon dioxide emissions would be 25% lower than today.

Many climate scientists think this would put the world on track to avoid the worst consequences of climate change. Of course, other countries may well have a different view of global equity. This includes China, which in the president's version would have to reduce its rapidly increasing per capita emissions to half the current level by 2050.

Most anthropogenic CO2 emissions come from fossil fuels, so there are two main routes to achieving the president's goal. First, the U.S. must reduce the share of fossil fuels—currently 85%—in the energy supply system, which includes everything from electricity generation and transportation to industrial uses. And second, Americans must use energy more efficiently.

The more we do of one, the less we'll need of the other. But ultimately what's required will depend on America's future economic growth.

Uncompromising environmental advocates argue that the dangers of climate change are so great that carbon emissions must be eliminated regardless of economic impact. Politicians, who must answer to voters, are unlikely to agree. A look at the underlying numbers helps explain.

Assume for now an annual economic growth target of 2% per capita for the next four decades. This would be higher than the disappointing 1.4% of the past decade, but roughly what the U.S. economy has achieved overall since 1970. With this target, the implications of the president's emission reduction goal become clearer.

First start with the key measure of energy efficiency: energy use per unit of economic output. Recently this has been falling by about 2% each year. Suppose that, through more aggressive policies like rewriting building codes to ensure greater energy efficiency, it was accelerated to 3%. In effect, this would mean bringing the rate of progress in every state in the country up to the level of the best state performer. It is not at all clear how this would be possible, but even if it is, meeting the 83% goal would still require extraordinary decarbonization measures on the supply side.

Here is a recipe that would work: Add 30,000 megawatts of new wind turbines every year between now and 2050 (this is nearly four times what was added in 2008, a record year). Add another 35,000 megawatts of solar photovoltaic capacity annually (more than 100 times what was added last year—a record year for solar, too).

That's just the beginning. Now multiply the nuclear reactor fleet fivefold by midcentury. Retrofit all existing coal-fired power plants with carbon capture and storage technology. And build twice as many new plants, also with carbon capture. Natural gas could substitute for coal, but only with carbon capture too. By 2050, the electric power system would be four times bigger than today. Two-thirds of the car and truck fleet would be powered by electricity, and the rest would run on advanced biofuels.

All of this would indeed reduce carbon emissions by 83%. It would also practically eliminate America's dependence on oil imports. But could it be done?

Perhaps, though not without enormous effort. Operating a power grid reliably and economically with intermittent solar and wind resources generating 40% of the electricity cannot be done today. Carbon capture and storage has yet to be demonstrated on a large scale. Meanwhile, a still vocal group of environmentalists remains adamantly opposed to nuclear energy—even though it is the only low-carbon energy source that is both scaleable and already generating large amounts of electricity.

Yet falling short on any of these decarbonization measures would require even more of the others, or even greater energy efficiency gains. Failing that, the only way to reach the 83% reduction goal would be through slower or even negative economic growth, i.e., lower living standards. This is a matter of arithmetic; it cannot be wished away.

The president's expected announcement at Copenhagen is probably the minimum needed to keep international climate negotiations alive. But the implications for U.S. energy are radical in scale and scope. The American public, sensing that the new climate policy will bring higher energy costs and a massive new government presence in energy production, remains unconvinced, to judge by recent poll numbers.

A steady stream of cost-reducing innovations in many different fields of energy technology—if sustained over decades—could bring the nation's climate and energy security goals within reach. But there are profound doubts about the government's ability to engineer this. When Mr. Obama returns from Europe, he will face an even tougher audience at home. Unless he can begin to dispel its doubts, his declaration of intent in Copenhagen will ring increasingly hollow.

Mr. Lester is professor and head of the department of nuclear science and engineering at MIT, where he is also director of the Industrial Performance Center.

from the Washington Post, 2009-Nov-6, by Martin Feldstein:

Obamacare's nasty surprise
Fewer insured, higher costs might be the result

Obamacare could have the unintended consequence of raising health insurance premiums and causing a decline in the number of people with insurance.

Here's why: A key feature of the House and Senate health bills would prevent insurance companies from denying coverage to anyone with preexisting conditions. The new coverage would start immediately, and the premium could not reflect the individual's health condition.

This well-intentioned feature would provide a strong incentive for someone who is healthy to drop his or her health insurance, saving the substantial premium costs. After all, if serious illness hit this person or a family member, he could immediately obtain coverage. As healthy individuals decline coverage in this way, insurance companies would come to have a sicker population. The higher cost of insuring that group would force insurers to raise their premiums. (Separate accident policies might develop to deal with the risk of high-cost care after accidents when there is insufficient time to buy insurance.)

The higher premium level would cause others who are currently insured to drop coverage, pushing premiums even higher. The result would be a spiral of rising premiums and shrinking numbers of insured.

In an attempt to prevent this, the draft legislation provides penalties for individuals who choose not to buy insurance and for employers that do not offer health insurance. But the levels of these fines are generally too low to cause a rational individual to insure.

Consider: 27 million people are covered by health insurance purchased directly, i.e. outside employer-based plans. The average cost of an insurance policy with family coverage in 2009 is $13,375. A married couple with a median family income of $75,000 who choose not to insure would be subject to a fine of 2.5 percent of that $75,000, or $1,875. So the family would save a net $11,500 by not insuring. If a serious illness occurs -- a chronic condition or a condition that requires surgery -- they could then buy insurance. Since fewer than one family in four has annual health-care costs that exceed $10,000, the decision to drop coverage looks like a good bet. For a lower-income family, the fine is smaller, and the incentive to be uninsured is even greater.

The story is similar for single people. The average cost of an individual policy is $4,800. An individual with earnings of $50,000 would face a fine of $1,250 and would therefore save $3,550 by not insuring.

The situation for the 176 million people who get their insurance through employer-based plans is more complex. To simplify, let's look at a family in which one adult earns $50,000 and receives the family plan that costs $13,375. Employees typically pay about 25 percent of the premium cost, or $3,340. The $10,035 remaining cost is deductible by the employer and not taxable to the employee. So the total net cost to the employer of this employee's compensation (taking into account the payroll tax and the corporate tax deduction) is $41,509. The employee would receive the $50,000 minus his part of the health insurance premium, or $46,660 as pretax income.

If that employer stopped providing insurance, he could be subject to a fine of 8 percent of payroll, or about $4,000 for this individual. But even with this fine, he could pay a cash wage to the individual of $53,605 and still have the same net cost of $41,509 (because the cash wage would be subject to the 7.65 percent payroll tax and the combined amount would be deductible at the 35 percent corporate tax rate.) The employee's pay would therefore rise from $46,660 to $53,605, an increase of $6,945. That would be subject to income and payroll taxes, leaving a net increase of $4,677. Even after paying the 2.5 percent personal fine on his cash income of $53,605, he would have additional net income of $3,337, a substantial rise for someone who started with pretax income of $46,660.

In short, for those who are now privately insured through employers or by direct purchase, there would be substantial incentives to become uninsured until they become sick. The resulting rise in the cost to insurance companies as the insured population becomes sicker would raise the average premium, strengthening that incentive.

The proposed legislation would at the same time increase the number of people who would get coverage through Medicaid or the Children's Health Insurance Program. It would also provide subsidies that would limit the premium cost to some low- and middle-income individuals.

But as the number of those who are currently insured declines, a future Congress might respond by increasing subsidies to middle- and upper-income individuals to buy private insurance. More likely, it would subsidize a public insurance company -- whether or not such a public option is in the initial law -- just as it now subsidizes Medicare in a way that was not contemplated when the Medicare program was created.

The Congressional Budget Office is required to estimate the cost of the law as it is written, not as it may evolve. But we as taxpayers will have to pay those future costs.

Martin Feldstein, a professor of economics at Harvard University and president emeritus of the nonprofit National Bureau of Economic Research, was chairman of the Council of Economic Advisers from 1982 to 1984. He is an independent outside director of the pharmaceutical company Eli Lilly. The views expressed here are his own.

from the Wall Street Journal, 2009-Nov-10, p.A4, by Anna Wilde Mathews:

Effort to Assist Older Voters May Raise Costs for the Young

A provision in the House health-care bill sets up a stark choice for Democrats between the interests of younger voters and older ones.

The bill would limit how much insurers can vary premiums based on the age of the person buying the policy. The narrower the range, the lower the premiums for older people, a help to those who currently pay some of the highest rates for insurance and often need coverage the most. But such a limitation tends to raise premiums for younger folks, who are sometimes reluctant to buy coverage.

In the House bill, the ratio can only be as much as 2 to 1, meaning older people could pay no more than twice what the youngest customers are charged. Senate Democrats, who haven't yet unveiled the bill that will go to the floor there, will have to decide whether to echo the House's ratio or use a different one. Lobbyists say one possibility might be 3 to 1, the average of two earlier Senate bills. Currently, the range isn't capped in most states and older people may pay five or six times as much.

It's tough to project the exact impact of the new age ratio because the bills contain other provisions affecting premiums.

Still, a calculator on the Kaiser Family Foundation Web site gives a rough sense. It suggests that under the House's 2-to-1 cap, a 20-year-old would pay $3,169 in annual premiums and a 60-year-old would pay $6,339 for comparable plans, if they both had incomes above the subsidy-eligible level. Under a bill passed by the Senate Finance Committee, which had a 4-to-1 age-rating ratio, the 20-year-old would pay $2,258 and the 60-year-old would pay $8,357.

The House bill also requires almost all Americans to carry health insurance or pay a fine. Republicans say the combined effect will be to make some young people buy expensive policies they don't want.

"We are going to tell every young American who has decided that they don't want to pay those premiums, they want to save up to get married or to buy a home, that, by golly, they are going to have to take insurance. And they are going to pay three to four times what they would under the current system because there is only a 2-to-1 ratio," said Rep. Joe Barton (R., Texas) during the weekend House debate.

Democrats, who relied on the youth vote in their 2008 election victories, counter that the bill helps young people by allowing them to stay longer on their parents' insurance plans and offering subsidies for coverage to lower-income Americans, many of whom are young people in low-paying jobs.

A spokeswoman for Rep. Henry Waxman (D., Calif.) chairman the House Energy and Commerce Committee, said the House bill will help level "the playing field so that regardless of age, gender, financial or health status, individuals and families are able to afford coverage."

The impact of the premium-age ratio would be felt most directly by those buying their own health plans. Based on Congressional Budget Office projections, after 10 years, about 30 million people would be buying individual insurance under the House bill, roughly double the current figure.

Merlyn Lawrence, a 64-year-old retiree in Scottsdale, Ariz., pays around $230 a month for a high-deductible insurance plan she bought through eHealthInsurance.com. Living with her daughter and relying on her Social Security income for expenses, she has to dip into her savings to make the monthly payments and can't always afford her prescriptions, she says. "At our age, we don't have the option of a job and bringing in a monthly income," she said. "Between that age of 50 and 65, I really feel like people need to be given a break."

On the other end of the spectrum, Tyler Routson, 23, of Los Angeles, works as a runner for a recording studio and is forced to rely on his parents to help pay the premiums for his roughly $140-a-month health plan. Though he is willing to help subsidize older people's costs as a "good Samaritan gesture," he said, he is also financially stretched and hoping a health bill will bring down the price of his coverage. "I know very few people who are my age who have money to help a 50-year-old person," he said.

The seniors' lobby AARP has pushed for the narrower age-rating band, arguing that older people would otherwise be priced out of the insurance market. "Our overriding concern is affordability," said John Rother, an executive vice president with the group.

Industry officials argue that if young people are asked to pay more, fewer of them will buy insurance, and many may opt instead to pay the penalty for being uninsured.

"That makes the premiums for everyone else increase," said Alissa Fox, senior vice president of the Blue Cross and Blue Shield Association.

from the Wall Street Journal, 2009-Nov-7, by Betsy Mccaughey:

What the Pelosi Health-Care Bill Really Says
Here are some important passages in the 2,000 page legislation.

The health bill that House Speaker Nancy Pelosi is bringing to a vote (H.R. 3962) is 1,990 pages. Here are some of the details you need to know.

What the government will require you to do:

• Sec. 202 (p. 91-92) of the bill requires you to enroll in a "qualified plan." If you get your insurance at work, your employer will have a "grace period" to switch you to a "qualified plan," meaning a plan designed by the Secretary of Health and Human Services. If you buy your own insurance, there's no grace period. You'll have to enroll in a qualified plan as soon as any term in your contract changes, such as the co-pay, deductible or benefit.

• Sec. 224 (p. 118) provides that 18 months after the bill becomes law, the Secretary of Health and Human Services will decide what a "qualified plan" covers and how much you'll be legally required to pay for it. That's like a banker telling you to sign the loan agreement now, then filling in the interest rate and repayment terms 18 months later.

On Nov. 2, the Congressional Budget Office estimated what the plans will likely cost. An individual earning $44,000 before taxes who purchases his own insurance will have to pay a $5,300 premium and an estimated $2,000 in out-of-pocket expenses, for a total of $7,300 a year, which is 17% of his pre-tax income. A family earning $102,100 a year before taxes will have to pay a $15,000 premium plus an estimated $5,300 out-of-pocket, for a $20,300 total, or 20% of its pre-tax income. Individuals and families earning less than these amounts will be eligible for subsidies paid directly to their insurer.

• Sec. 303 (pp. 167-168) makes it clear that, although the "qualified plan" is not yet designed, it will be of the "one size fits all" variety. The bill claims to offer choice—basic, enhanced and premium levels—but the benefits are the same. Only the co-pays and deductibles differ. You will have to enroll in the same plan, whether the government is paying for it or you and your employer are footing the bill.

• Sec. 59b (pp. 297-299) says that when you file your taxes, you must include proof that you are in a qualified plan. If not, you will be fined thousands of dollars. Illegal immigrants are exempt from this requirement.

• Sec. 412 (p. 272) says that employers must provide a "qualified plan" for their employees and pay 72.5% of the cost, and a smaller share of family coverage, or incur an 8% payroll tax. Small businesses, with payrolls from $500,000 to $750,000, are fined less.

Eviscerating Medicare:

In addition to reducing future Medicare funding by an estimated $500 billion, the bill fundamentally changes how Medicare pays doctors and hospitals, permitting the government to dictate treatment decisions.

• Sec. 1302 (pp. 672-692) moves Medicare from a fee-for-service payment system, in which patients choose which doctors to see and doctors are paid for each service they provide, toward what's called a "medical home."

The medical home is this decade's version of HMO-restrictions on care. A primary-care provider manages access to costly specialists and diagnostic tests for a flat monthly fee. The bill specifies that patients may have to settle for a nurse practitioner rather than a physician as the primary-care provider. Medical homes begin with demonstration projects, but the HHS secretary is authorized to "disseminate this approach rapidly on a national basis."

A December 2008 Congressional Budget Office report noted that "medical homes" were likely to resemble the unpopular gatekeepers of 20 years ago if cost control was a priority.

• Sec. 1114 (pp. 391-393) replaces physicians with physician assistants in overseeing care for hospice patients.

• Secs. 1158-1160 (pp. 499-520) initiates programs to reduce payments for patient care to what it costs in the lowest cost regions of the country. This will reduce payments for care (and by implication the standard of care) for hospital patients in higher cost areas such as New York and Florida.

• Sec. 1161 (pp. 520-545) cuts payments to Medicare Advantage plans (used by 20% of seniors). Advantage plans have warned this will result in reductions in optional benefits such as vision and dental care.

• Sec. 1402 (p. 756) says that the results of comparative effectiveness research conducted by the government will be delivered to doctors electronically to guide their use of "medical items and services."

Questionable Priorities:

While the bill will slash Medicare funding, it will also direct billions of dollars to numerous inner-city social work and diversity programs with vague standards of accountability.

• Sec. 399V (p. 1422) provides for grants to community "entities" with no required qualifications except having "documented community activity and experience with community healthcare workers" to "educate, guide, and provide experiential learning opportunities" aimed at drug abuse, poor nutrition, smoking and obesity. "Each community health worker program receiving funds under the grant will provide services in the cultural context most appropriate for the individual served by the program."

These programs will "enhance the capacity of individuals to utilize health services and health related social services under Federal, State and local programs by assisting individuals in establishing eligibility . . . and in receiving services and other benefits" including transportation and translation services.

• Sec. 222 (p. 617) provides reimbursement for culturally and linguistically appropriate services. This program will train health-care workers to inform Medicare beneficiaries of their "right" to have an interpreter at all times and with no co-pays for language services.

• Secs. 2521 and 2533 (pp. 1379 and 1437) establishes racial and ethnic preferences in awarding grants for training nurses and creating secondary-school health science programs. For example, grants for nursing schools should "give preference to programs that provide for improving the diversity of new nurse graduates to reflect changes in the demographics of the patient population." And secondary-school grants should go to schools "graduating students from disadvantaged backgrounds including racial and ethnic minorities."

• Sec. 305 (p. 189) Provides for automatic Medicaid enrollment of newborns who do not otherwise have insurance.

For the text of the bill with page numbers, see www.defendyourhealthcare.us.

Ms. McCaughey is chairman of the Committee to Reduce Infection Deaths and a former Lt. Governor of New York state.

from the Wall Street Journal, 2009-Nov-12, p.A24:

A 69% Capital Gains Tax Hike . . .
Pelosi's 5.4% income surtax would hit capital gains and dividends.

Our job is to read bad legislation so you don't have to, and on that score we may demand combat pay for plowing our way through the House health-care bill that passed on Saturday. This thing has economic booby traps everywhere, such as favors for the tort bar (see below) and the largest capital gains tax increase in at least a half-century.

House Democrats are funding their new entitlement with a 5.4% surtax on incomes above $500,000 for individuals and above $1 million for joint filers. The surcharge is intended to snag the greatest number of taxpayers to raise some $460.5 billion, and so the House has written it to apply to modified adjusted gross income. That means it includes both capital gains and dividends.

That surtax takes effect on January 1, 2011, or the day the Bush tax rates of 2001 and 2003 expire. Today's capital gains tax rate of 15% would bounce back to 20% because of the Bush repeal and then to 25.4% with the surtax. That's a 69% increase, overnight. The last time investors were hit with anything comparable was 1986, when the capital gains rate jumped to 28% from 20%, a 40% increase, as part of the Reagan tax reform that lowered income tax rates.

The 1986 experience was not a happy one. Tax revenues from capital gains surged before the increase took effect in 1987, as investors moved to cash in at the lower rate. Revenues then plummeted. Total realized capital gains didn't again reach their 1985 level of $172 billion until 1996. By 1992, the federal government was barely getting more in revenue ($29 billion) at the 28% rate than it did in 1985 ($26.5 billion) at the 20% rate.

Rate reductions, as in 2003 when Republicans cut the rate to 15% from 20%, have typically had the opposite effect. Treasury receipts from capital gains climbed to an estimated $117.8 billion in 2006 from $49 billion in 2002.

While the rising stock market through this period played a role, so did the "unlocking" effect from a lower rate that reduces the friction of taxes on decisions to buy or sell and thus report a capital gain. Both the economy and the Treasury also benefitted when Bill Clinton agreed to reduce the rate to 20% from 28% as part of his budget deal with Newt Gingrich in 1997.

Candidate Obama acknowledged this reality in April of 2007, when he backed away from his original proposal to nearly double the capital gains rate to 28%, and instead suggested 20%. He also promised to eliminate the tax entirely for small business. "I'm mindful that we've got to keep our capital gains tax to a point where we can actually get more revenue," he said at the time.

While families of all income levels realize capital gains, Internal Revenue Service data from 2007 show that 58% of overall capital gains revenue was reported by taxpayers with adjusted gross income above $1 million—and would be subject to the new 25.4% rate. The actual percentage of revenue subject to the penalty would be higher when counting individuals with income above $500,000.

Some readers may think that this 5.4% surtax can't possibly make it into a final Congressional bill due to Senate opposition, but we wouldn't be so sure. Mr. Obama hasn't said so much as a discouraging word about the House bill. And we've seen in the past 10 months that when Mr. Obama's campaign promises clash with the priorities of House liberals, the liberals always win.

from the Wall Street Journal, 2009-Nov-12, p.A24:

. . . And a Buried Tort Bomb
A stealth provision that would undermine state damage caps.

In his September address to Congress, President Obama made a nod to bipartisanship by acknowledging that excessive litigation "may be" contributing to rising health costs, and he proposed state "demonstration projects" to test medical tort reform. This wasn't much of a concession, but it apparently was still too much for House Democrats, who are using their bill to subvert reform that is already on the books in many states.

Buried in Speaker Nancy Pelosi's 1,990-page bill is a provision that provides "incentive payments" to each state that develops an "alternative medical liability law" that encourages "fair resolution" of disputes and "maintains access to affordable liability insurance." Sounds encouraging. Read on, however, and you come to this nugget: The state only qualifies if its new law "does not limit attorneys' fees or impose caps on damages."

Holy Bill Lerach.

Huge contingency fees and damage awards are the mother's milk of frivolous lawsuits. That's why 30 states have adopted caps on awards as the core of their reform, with huge success. Texas imposed malpractice caps in 2003, and the state has been rewarded with fewer lawsuits, a 50% drop in malpractice premiums, and a flood of new doctors. The House bill is intended to discourage other states from doing the same.

The Pelosi bill also provides these incentives only if states adopt watered-down alternatives to existing malpractice caps. Those alternatives include certificate-of-merit rules, which in theory require lawyers to get medical proof before suing but in practice mean that lawyers recruit and finance "expert" witnesses.

States could also provide "early offer" rules, which are supposed to encourage fair settlement of legitimate claims. But as organizations like the Manhattan Institute have noted, those offers only work if combined with restrictions on lawyer fees and damage awards that reduce the incentive to go for the jackpot judgment.

The Senate bill avoids tort reform entirely, notwithstanding Mr. Obama's showy pledge before a national TV audience.

Never mind that reducing medical lawsuits is a rare reform provision that really would reduce health-care costs. The Congressional Budget Office estimates the savings at $54 billion over a decade. Consulting firm Tillinghast Towers-Perrin has suggested the direct cost of medical tort litigation is more like $30 billion annually. PriceWaterhouseCoopers estimates that last year $240 billion in health expenditures were the result of doctors ordering unnecessary procedures to protect against the risk of lawsuits.

The hidden Pelosi tort bomb is one more example of the stealth radicalism that defines ObamaCare. If it passes in anything like its current form, we are going to be cleaning up the mess for decades to come.

from the Hill, 2009-Nov-6, by Dick Morris and Eileen McGann:

ObamaCare endorsements: What the bribe was

As the suicidal Democratic congressmen proceed to rubber-stamp the Obama healthcare reform despite the drubbing their party took in the '09 elections, the president trotted out the endorsements of the AMA and the AARP to stimulate support. But these — and the other endorsements — his package has received are all bought and paid for. Here are the deals:

• The American Medical Association (AMA) was facing a 21 percent cut in physicians' reimbursements under the current law. Obama promised to kill the cut if they backed his bill. The cuts are the fruit of a law requiring annual 5-6 percent reductions in doctor reimbursements for treating Medicare patients. Bravely, each year Congress has rolled the cuts over, suspending them but not repealing them. So each year, the accumulated cuts threaten doctors. By now, they have risen to 21 percent. With this blackmail leverage, Obama compelled the AMA to support his bill … or else!

• The AARP got a financial windfall in return for its support of the healthcare bill. Over the past decade, the AARP has morphed from an advocacy group to an insurance company (through its subsidiary company). It is one of the main suppliers of Medi-gap insurance, a high-cost, privately purchased coverage that picks up where Medicare leaves off. But President Bush-43 passed the Medicare Advantage program, which offered a subsidized, lower-cost alternative to Medi-gap. Under Medicare Advantage, the elderly get all the extra coverage they need plus coordinated, well-managed care, usually by the same physician. So more than 10 million seniors went with Medicare Advantage, cutting into AARP Medi-gap revenues.

Presto! Obama solved their problem. He eliminates subsidies for Medicare Advantage. The elderly will have to pay more for coverage under Medigap, but the AARP — which supposedly represents them — will make more money. (If this galls you, join the American Seniors Association, the alternative group; contact sbarton@americanseniors.org.)

• The drug industry backed ObamaCare and, in return, got a 10-year limit of $80 billion on cuts in prescription drug costs. (A drop in the bucket of their almost $3 trillion projected cost over the next decade.) They also got administration assurances that it will continue to bar lower-cost Canadian drugs from coming into the U.S. All it had to do was put its formidable advertising budget at the disposal of the administration.

• Insurance companies got access to 40 million potential new customers. But when the Senate Finance Committee lowered the fine that would be imposed on those who don't buy insurance from $3,500 to $1,500, the insurance companies jumped ship and now oppose the bill, albeit for the worst of motives.

The only industry that refused to knuckle under was the medical device makers. They stood for principle and wouldn't go along with Obama's blackmail. So the Senate Finance Committee retaliated by imposing a tax on medical devices such as automated wheelchairs, pacemakers, arterial stents, prosthetic limbs, artificial knees and hips and other necessary accoutrements of healthcare.

So these endorsements are not freely given, but bought and paid for by an administration that is intent on passing its program at any cost.

from the Wall Street Journal, 2009-Oct-22, by Allysia Finley:

Obama's Doctor Shortage
All of the president's "fixes" will just create new problems.

In his campaign for health-care reform, President Obama has repeatedly harped about a primary care doctor shortage. "The status quo is we don't have enough primary care physicians," President Obama said in an ABC interview in July. The president promises that his health-care reform proposal will address the problem of a primary care physician shortage---and he's right. He will make it worse.

Mr. Obama wants to provide insurance for an additional 30 million Americans, but recent experience in Massachusetts shows that universal coverage will result in an even greater physician shortage and longer waiting times for patients.

Because Massachusetts' Commonwealth system served as the model for the universal coverage Mr. Obama wants to implement nationwide, a few results of its health-care experiment are worth noting. A 2008 Physician Workforce Study by the Massachusetts Medical Society found that the percentage of residents having difficulty getting care rose to 24% from 16% between 2007 and 2008. Since 2006 when the Commonwealth system was implemented, internal medicine and family practice went from having labor market conditions that were considered "soft" or unstressed to being the only two specialties with labor market conditions classified as "severe" or experiencing the highest possible degree of stress.

And with 33% of the state's primary care doctors now considering changing professions due to dissatisfaction with the current practice environment---an increase of 8% in the last year---Massachusetts' problems are just beginning. Because of physicians' overbearing work loads and a massive administrative bureaucracy, Massachusetts is struggling to recruit and retain doctors. About three-quarters of medical group directors say that their ability to retain physicians has become more difficult in the last three years. Over half of the state's resident physicians choose to practice elsewhere.

Massachusetts provides just a taste of what the U.S. has to look forward to with ObamaCare, but it's enough to make anyone want to forgo the whole dish. The Association of American Medical Colleges predicts a primary care physician shortage of 46,000 by 2025, and if universal health care is passed, the physician shortage would increase by 25%.

If Mr. Obama intends to implement universal health care, he can do a few things to increase the supply of primary care doctors to meet the sudden surge in demand his plan would create. But as with most other ObamaCare "fixes," these solutions would just create new problems.

First, the president can try to increase the number of medical students entering primary care through incentives like improved student loan programs. But loan repayment programs aimed at enticing medical students into primary care are going to be just about as effective as they are at enticing young attorneys into civil service, which is to say, not very.

While medical students graduate with an average debt of $154,607, the discrepancy between the earnings of primary care physicians and specialists after a few years eclipses the benefits of increased financial aid. According to data compiled by physician research and consulting company Merritt Hawkins, family physicians earn on average $173,000 a year compared to $335,000 for oncologists and $419,000 for cardiologists. Even if the federal government were to pay off all of primary care physicians' student loans, specialists would still be financially better off than primary care doctors after only a few years.

Mr. Obama ignores two of the most important reasons why U.S. medical students specialize: they want more flexible, lighter work loads and don't want to deal with primary care's tangle of bureaucracy. The SF Gate notes that according to a University of Missouri and the Federal Health Resources and Services Administration estimate, ObamaCare would increase the work load of primary care physicians by 29% in the next 15 years. By increasing primary care physicians' work loads and adding a new, government insurance bureaucracy, ObamaCare would make primary care even less attractive.

Mr. Obama could also try to incentivize docs to pursue primary care by increasing their payments. But this is a zero-sum game as doctors are already finding out. This year Medicare payments to primary care doctors are increasing by 6-8% while payments to specialists are getting cut to compensate for this increase.

Even if Mr. Obama were to succeed at enticing more medical students into primary care, he'd have to grapple with Medicare's current cap on Graduate Medical Education residency funding. Passed to slow growth in Medicare spending, the Balanced Budget Act of 1997 maintains Medicare funding for Graduate Medical Education at 1996 levels and thereby acts as a ceiling on the physician supply. That means any increase in the number of primary care physicians would require a commensurate decrease in the number of specialists.

In order to prevent a reduction in specialists while increasing the number of primary care physicians, Congress would have to lift Graduate Medical Education caps. But lifting GME caps, the most important step to increasing the primary care physician supply, isn't part of the legislation, mainly because Congress doesn't want to further inflate the price tag on this trillion dollar behemoth. According to Atul Grover, M.D. of the AAMC, adding 30,000 new residency positions---which is what Mr. Grover says would be necessary to offset the impending physician shortage---would cost about $25 billion over 10 years.

By drastically increasing demand while doing little to increase primary care physician supply, ObamaCare will turn health care into a consumer nightmare: longer wait times, shorter visits, higher prices, and decreased customer satisfaction. The U.S. will have to rely increasingly on nurse practitioners and physician assistants to meet patient demand. According to the WHO, the nurse-to-physician ratio in Canada and the U.K. are 5.3 and 5.6, respectively, compared to 3.6 in the U.S. And as fewer bright young people pursue medicine due to the profession's general malaise and oppressive bureaucratic regulations, we're likely to see an even greater physician shortage---not just in primary care, but in specialty care as well.

A September survey by Investors Business Daily found that 45% of doctors would consider quitting if Congress passes its "comprehensive" health-care overhaul, largely because of the increased bureaucracy and liabilities and lower reimbursements. The U.S. is facing a John Galt-like protest from doctors. The Obama administration may soon be wondering: who is John Galt?

from CNSNews.com, 2009-Jul-31, by Christopher Neefus:

Obama's Science Adviser Called for `Zero Economic Growth'

At a time when it was popular among environmentalists to talk about capping pollutants, John Holdren was writing about placing “caps” on the U.S. economy itself--and working toward “zero economic growth.”

Holdren, who is now President Obama’s top adviser on science and technology policy, wrote in the 1970s that it would be “entirely logical” to cap the Gross National Product--the total productivity of the American economy. 

“It is by now abundantly clear that the GNP cannot grow forever. Why should it?” Holdren asked in a 1977 college science textbook he co-wrote with Paul R. Ehrlich and Anne H. Ehrlich, titled “Ecoscience: Population, Resources, Environment.”

“Why should we not strive for zero economic growth (ZEG) as well as zero population growth?”

The pertinent chapter, “Changing American Institutions,” discusses what the authors perceived as problems in America’s social mores, government, and economic system, which they say makes it “the leader in humanity’s reckless exploitation of Earth.”

The United States, they argued, should focus on limiting the amount of physical product produced and in circulation. 

Again, it would be “entirely logical,” Holdren and the Ehrlichs wrote, “to set limits on the amount of product a nation needs and then strive to reduce the amount of work required to produce such a product (and, we might add, to see that the product is much more equitably distributed that it is today).”

Elsewhere in the chapter, Holdren and the Ehrlichs instead highlight economies less focused on economic growth, what they call “growthmania,” where product could be better distributed.

“That economists have clung to their ‘growthmania’ is not surprising,” they wrote. “After all, natural scientists often cling to outmoded ideas that have produced far less palpable benefits than the growing mixed economies of the Western world in the twentieth century.”

“The question of whether a different economic system might have produced a more equitable distribution of benefits is not one that Western economists like to dwell on.”

Consistent with many of the other arguments laid out in “Ecoscience,” Holdren and the Ehrlichs believe making the change to a zero growth global economy also requires curtailing Earth’s population. “How do we get from here to there? Population control, of course, is absolutely essential, with an eventual target of a smaller population than today’s.”

The authors admit that making such a change to the U.S. economy would be difficult because of ingrained cultural opposition, with two chief road blocks to zero growth and broad redistribution of resources. 

The first problem, they say, is that it would be “a threat to some of the most dearly held beliefs of this society” and would “attack the Protestant work ethic.”

That work ethic, they write, insists that one must be kept busy on the job for forty hours a week” and work overtime or moonlight, “so that the money can be earned to buy all those wonderful automobiles, detergents, appliances, and assorted gimcracks that must be bought if the economy is to continue to grow.” 

Holdren and the Ehrlichs, however, call that tradition “outmoded,” and say American attitudes must change to reflect their environmental situation.

The larger problem, the radical enviromentalists wrote, is that forcing the economy to be less productive would face opposition from those with money and political influence.

“The critical question, of course, is how to get around the extraordinary power interests that would be unalterably opposed to maximum income limits and (if possible) even more opposed to direct taxation of wealth,” they say on page 850.

“Greed and the desire for power are extraordinarily strong forces against any serious attempts to curb income and wealth,” and, “(t)he real sticky wicket would be direct taxation of wealth, since that would threaten the entrenched power of the Rockefellers, Carnegies, Fords, Kennedys, and countless other beneficiaries of enterprising and acquisitive ancestors.”

“But once some system of further redistribution were established in the United States, it would then be justifiable to implement a transition to a (less productive) economy as quickly as possible.”

Before joining the Obama administration, Holdren was a professor at Harvard and the director of the Woods Hole Research Center in Falmouth, Mass. He holds a Ph.D. from Stanford University and an M.S. from MIT, where he also received his undergraduate degree.

The White House Office of Science and Technology Policy did not comment on questions from CNSNews.com about Holdren’s stance on zero economic growth or whether it has changed since the 1970s.

from the Heritage Foundation online, 2009-Oct-1, by Conn Carroll:

Kerry-Boxer: 10% Unemployment Is Just The Beginning

Defending his new energy tax bill Sen. John Kerry (D-MA) told Congress Daily yesterday:

Let me emphasize something very strongly as we begin this discussion. The United States has already this year alone achieved a 6 percent reduction in emissions simply because of the downturn in the economy, so we are effectively saying we need to go another 14 percent.

The United States has also “achieved” 3.36 million net jobs lost so far this year and a 9.7% unemployment rate. Is this “green jobs” economy that the enviro-left is trying to sell America? Is Kerry admitting that instituting cap and trade will inflict the same amount of damage on the U.S. economy as the housing bubble and financial sector breakdown have?

Kerry-Boxer: 20% less carbon and 10% unemployment through 2020!

from the Associated Press, 2009-Nov-6, by Jim Kuhnhenn:

Analysis: 10 percent jobless is Obama's new world

WASHINGTON — For months he had warned it was coming but that didn't ease the political shockwaves for President Barack Obama when unemployment topped 10 percent.

A year after his election Obama finds it increasingly difficult to blame the sour economy on George W. Bush or offer reassurances that jobless Americans will soon find work.

Never mind that the economy itself grew in the last quarter, that the recession, as measured by the precise formulas used by economists, is over and that the number of jobs lost in October was less than one-third the number of job losses at the start of his presidency.

Those claims about the recession's end do not convince most people, who remain painfully aware of the unemployment rate.

At 10.2 percent, October unemployment climbed to chart-topping heights unseen in more than a quarter century. The bottom line is that more than 15 million Americans are out of work and 3.5 million lost their jobs while Obama was president. Expected or not, this is Obama's new reality.

"I won't let up until the Americans who want to find work can find work, and until all Americans can earn enough to raise their families and keep their businesses open," the president declared Friday.

That's a hopeful promise but not very realistic.

And it shows that, for the time being, action to tackle record budget deficits will simply have to wait.

Obama, appearing at the White House Rose Garden on Friday three hours after the jobless numbers were made public, said his administration was looking at additional spending for roads and bridges and energy efficient buildings. Additional tax cuts for businesses and steps to increase credit for small businesses were also on the bill.

The new unemployment rate also came on the same day Obama signed a $24 billion bill to extend jobless benefits and spur homebuying

In a sign of Democratic thinking, Rep. Carolyn Maloney, who heads Congress's Joint Economic committee, said Democrats would consider new aid to states, an "infrastructure bank" to increase construction jobs and small business tax credits.

"I think we're witnessing a political renaissance about concerns about jobs," Lawrence Mishel, president of the labor-leaning Economic Policy Institute, said approvingly. "It will put the deficit concerns into their appropriate context."

What all this amounts to is another stimulus for the economy. Though don't look for Democrats to call it that; Democrats have a tough enough time debating the merits of the $787 billion stimulus Congress passed earlier this year.

Republicans were quick to pounce on the proposals. Internal polling by the Republican National Committee after Republican gubernatorial victories in New Jersey and Virginia showed that Republican candidates could do well by arguing against additional spending while promoting job growth through tax cutting alone.

But in rhetoric and in deed, Obama is being forced to address an unemployment picture his economic team had long ago expected to avoid.

Many economists predict the jobless rate will rise again, peaking at 10.5 percent sometime next year before employment makes a turnaround in the spring. That still means unemployment will remain high for some time. The administration's own projections still see unemployment at 8 percent by the end of 2011.

Such lingering discomfort can have economic and political consequences.

Consumer spending likely won't increase rapidly. Foreclosures will continue to rise, hitting not just subprime borrowers, but prime mortgage holders as well. Commercial real estate lending, already teetering, could plunge in the face of rising vacancy and loan delinquency rates.

Politically, Democrats are staring at some damage — and the fear of unemployment — themselves. Exit polls Tuesday in the New Jersey and Virginia GOP victories showed that the economy was the top issue in the minds of voters. And national public opinion surveys show that a majority of the public doesn't believe Obama's economic policies are working.

Couple that with traditional losses by the president's party during midterm elections and Democrats have cause to worry about their own fate.

The unemployment number masks the fact that job losses slowed compared to past months — the work force went down by 190,000 in October compared to 219,000 in September. What's more, the Bureau of Labor Statistics said job losses in August and September had been overstated by 91,000.

In addition, the economy grew by 3.5 percent in the third quarter. And Christina Romer, a top Obama economic adviser, noted an increase in temporary service jobs. "That's often the first sign of firms kind of dipping their toe back into hiring people," she said in an interview with The Associated Press.

But since the start of the recession in December 2007, 7.3 million Americans have lost their jobs and key sectors — construction, manufacturing and retail trade — are still seeing significant declines.

The president has not been helped by reports of flaws in the administration's count of jobs created by the $787 billion stimulus.

Ten months into the job, Obama did not even try to lay the blame for the economy at Bush's feet, as he has in the past. His only criticism was implied.

"When we first came into office, our immediate goal was to stop the free fall that caused our economy to shrink at an alarming rate," he said. "We've succeeded in achieving that goal, as our economy grew last quarter for the first time in a year."

But Obama has already taken ownership of the economy.

Republicans, he noted wryly during a July speech in Michigan, were eager to blame him for the economy.

"That's fine," he added, "Give it to me!"

Four months later, it would be hard to give it back.

from the New York Times, 2009-Nov-7, p.A1, by David Leonhardt:

Broader Measure of U.S. Unemployment Stands at 17.5%

For all the pain caused by the Great Recession, the job market still was not in as bad shape as it had been during the depths of the early 1980s recession — until now.

With the release of the jobs report on Friday, the broadest measure of unemployment and underemployment tracked by the Labor Department has reached its highest level in decades. If statistics went back so far, the measure would almost certainly be at its highest level since the Great Depression.

In all, more than one out of every six workers — 17.5 percent — were unemployed or underemployed in October. The previous recorded high was 17.1 percent, in December 1982.

This includes the officially unemployed, who have looked for work in the last four weeks. It also includes discouraged workers, who have looked in the past year, as well as millions of part-time workers who want to be working full time.

The official jobless rate — 10.2 percent in October, up from 9.8 percent in September — remains lower than the early 1980s peak of 10.8 percent.

The broader rate is highest today, sometimes 20 percent, in states that had big housing bubbles, like California and Arizona, or that have large manufacturing sectors, like Michigan, Ohio, Oregon, Rhode Island and South Carolina.

The new benchmark is a sign of just how much damage financial crises tend to inflict. A recent book by Carmen M. Reinhart and Kenneth S. Rogoff, two economists, found that over the last century the typical crisis had caused the jobless rate in the country where it occurred to rise for almost five years. By that standard, the jobless rate here would continue rising for two more years, through the end of 2011.

Most economists predict that the rate will in fact begin to fall next year, largely because of the federal government's aggressive response — fiscal stimulus, interest-rate cuts and a variety of creative steps by the Federal Reserve and Treasury Department. Friday's report showed that monthly job losses continued to slow recently, though the improvement has been gradual.

At the White House Friday, President Obama signed a bill to extend unemployment benefits and a tax credit for home buyers, and said that he was looking at ways to enact more stimulus. On Wednesday, the Fed announced that it expected to leave its benchmark interest at zero for “an extended period.”

Nearly 16 million people are now unemployed and more than seven million jobs have been lost since late 2007.

Officially, the Labor Department's broad measure of unemployment goes back only to 1994. But early this year, with the help of economists at the department, The New York Times created a version that estimates it going back to 1970. If such a measure were available for the Depression, it probably would have exceeded 30 percent.

Compared with the early 1980s, a smaller share of workers today are officially unemployed and a smaller share are considered discouraged workers.

But there are many more people who would like to be working full time and have been able to find only part-time work, according to the government's monthly survey of workers. The rapid increase in their ranks and in the officially unemployed has caused the rate to rise much faster in this recession than in the early 1980s. Two years ago, it was only 8.2 percent.

One of the more striking aspects of the Great Recession is that most of its impact has fallen on a relatively narrow group of workers. This is evident primarily in two ways.

First, the number of people who have experienced any unemployment is surprisingly low, given the severity of the recession. The pace of layoffs has increased, but the peak layoff rate this year was the same as it was during the 2001 recession, which was a fairly mild downturn. The main reason that the unemployment rate has soared is the hiring rate has plummeted.

So fewer workers than might be expected have lost their jobs. But those without work are paying a steep price, because finding a new job is extremely difficult.

Second, wages have continued to rise for most people who still have jobs. The average hourly wage for rank-and-file workers, who make up about four-fifths of the work force, actually accelerated in October, according to the new report.

Even though some companies have cut the pay of workers, the average hourly wage has still risen 1.5 to 2.5 percent over the last year, depending on which government survey is examined. Average weekly pay has risen less — zero to 1 percent — because hours have been cut. But average prices have fallen. Altogether, the typical worker has received a 1 to 2 percent inflation-adjusted raise over the last year.

In the other two severe recessions in recent decades, workers with jobs fared considerably worse. At the same point in the mid-1970s downturn, real weekly pay had fallen 7 percent; in the early 1980s recession, it had fallen 4 percent.

It is a strange combination: workers who still have a job are doing better than in other deep recessions, but the unemployment and underemployment have risen to their highest level since the Depression.

from City Journal, 2009-Autumn, by Steven Malanga:

Feral Detroit
Nature is reclaiming the Motor City.

We usually apply the word “feral,” which means “reverting to a wild state,” to domesticated animals that are abandoned and must survive on their own. But in rapidly shrinking Detroit, where tens of thousands of structures have sat empty for years, people are starting to describe houses and neighborhoods as feral—that is, as places where human activity ceased so long ago that nature has reclaimed them.

Two Detroit residents writing for the blog Sweet Juniper describe these feral houses as places that “for a few beautiful months during the summer . . . disappear behind ivy or the untended shrubs and trees planted generations ago to decorate their yards. The wood that frames the rooms gets crushed by trees. . . . The burnt lime, sand, gravel and plaster slowly erode into dust.” The bloggers' striking photos show long-neglected houses completely enclosed in vegetation; only the outline of the architect's design suggests something created by man buried beneath.

Feral houses are perhaps the most visible sign of Detroit's long decline, and their troubling numbers are starting to create talk within the administration of Mayor Dave Bing, who is running for reelection in November, that the city must shrink to survive. Bing, the former National Basketball Association great who first won the mayor's office in a special May election to replace the disgraced Kwame Kilpatrick, recalls how, during the campaign, he would travel through neighborhoods where only a house or two remained occupied on each block, where weeds had reclaimed abandoned lots, and where storefronts sat empty. Today, officials estimate, the city contains an astonishing 70,000 abandoned structures—many of them houses, but also some commercial properties. In downtown Detroit alone, a local newspaper identified 48 office buildings with “no outward sign of life.”

That's not surprising, considering how many people have fled Detroit over the decades. Over the last half-century, the city's population has shrunk by 50 percent, from about 1.8 million people to fewer than 900,000. Since 2000, the city has lost 35,000 residents. Detroit officials acknowledge that they see little prospect for a population turnaround soon.

Though any plan to downsize Detroit—a city where people now use only half the acreage within its boundaries—would be complicated, expensive, and time-consuming, it would let the city focus its resources, including crime-fighting and redevelopment efforts, where they could do the most good. The first phase in such a plan would involve tearing down abandoned houses and other empty structures that serve as focal points for criminal activity. But that itself is a daunting task. City officials say that it takes an average of $10,000 to demolish an abandoned house, which makes the city's long-term tab potentially north of $700 million. This summer, Detroit used federal grants to start the task, demolishing some 226 abandoned houses in areas near neighborhood schools to reduce criminals' opportunities to prey on schoolchildren.

Downsizing Detroit also presents political obstacles. Officials must identify neighborhoods whose city services would be withdrawn and whose residents would be relocated, a process certain to set off political fireworks. A summer series in a Detroit newspaper quoted some residents of desolate neighborhoods as welcoming such relocation efforts; others vowed to resist.

Yet doing nothing is no longer an option: the city's economic and fiscal woes are already forcing deep cuts in services. Detroit's board of education, for instance, resisted downsizing for years and continued until 2007 to operate a school system with a capacity for 160,000 students, even though just 115,000 students attended that year. The hemorrhaging budget finally forced the city to close some 40 schools. But the system still faces insolvency and is even considering a bankruptcy filing. Similar budget crises will require rolling back various other essential services, from police and fire to sanitation.

Though some blame Detroit's population losses on larger economic forces, economists Edward Glaeser and Andrei Shleifer argue in a groundbreaking paper that the city's problems are mostly self-inflicted. (The paper, called “The Curley Effect,” gets its name from legendary Boston mayor James Curley, who favored Irish residents and pushed other groups out.) After winning election in 1973, Detroit's first black mayor, Coleman Young, consolidated his power, driving white residents, who had voted against him, out of the city by withdrawing services from their neighborhoods. Eventually, Glaeser and Shleifer write, Detroit became “an overwhelmingly black city mired in poverty and social problems”—and shrinking fast.

Steven Malanga is the senior editor of City Journal and a senior fellow at the Manhattan Institute. He is the author of The New New Left.

from the Telegraph of London, 2009-Sep-14, by Henry Samuel:

Nicolas Sarkozy wants to measure economic success in 'happiness'

Nicolas Sarkozy has cemented the French reputation for enjoying the good life by proposing the country's economic progress should be measured in "happiness".

Paris -- The French president has announced a "revolutionary" plan to make joy and wellbeing the key indicators of growth, rather than traditional yardsticks like a country's gross domestic product (GDP).

The new assessment will be based on figures relating to work-life balance, recycling, household chores and even levels of traffic congestion.

Critics have pointed out that measuring "happiness" will make France's struggling economy, famous for its short working week and generous social benefits, look better.

Mr Sarkozy asked US economist Joseph Stiglitz, winner of the 2001 Nobel economics prize and a critic of free-market economists, and Armatya Sen of India, who won the 1998 Nobel Prize for work on developing countries, to come up with the new measures.

Their report recommended a shift in emphasis on gross domestic product to ones which measure wellbeing and "sustainability".

Mr Sarkozy said he would "fight to make all international organisations change their statistical systems by following the recommendations" of the report.

He said: "A great revolution is waiting for us. For years, people said that finance was a formidable creator of wealth, only to discover one day that it accumulated so many risks that the world almost plunged into chaos.'

"The crisis doesn't only make us free to imagine other models, another future, another world. It obliges us to do so."

When the measures are adopted, France will move a step closer to the remote Himalayan kingdom of Bhutan, currently the only country in the world which puts happiness at the heart of government policy.

In Bhutan, the government must consider every policy for its impact on "Gross National Happiness". This has led to a ban on advertising, wrestling channels, plastic bags and traffic lights.

Mr Sarkozy told a packed hall at Paris' Sorbonne university the world could have predicted last year's economic crisis if it had looked at happiness, wellbeing and sustainability.

The French government is now planning to include many of the "happiness" indicators in its regular growth statistics.

His report explains that dry economic statistics alone are no longer sufficient. "Traffic jams may increase GDP as a result of the increased use of gasoline, but obviously not the quality of life," it writes.

The report also suggests "measuring the proportion of one's time in which the strongest reported feeling is a negative one", such as pain or worry. Conversely, positive emotions such as joy should also be charted.

Leisure should be part of the equation too as "consuming the same bundle of goods and services but working 1,500 hours a year instead of 2,000 hours a year implies an increase in one's standard of living".

More prominence should be given to the distribution of income and wealth, as well as to access to education and health.

Others aspects to be factored in are hobbies, social relationships and levels of personal debt.

Sustainability is vital, said the report, to factor in countries or individuals who over-consume their economic wealth or damage the environment for the future.

The president is rumoured to have delayed the report's release as he thought discussing happiness in the depths of the economic crisis might have been unpopular.

But with France showing timid signs of recovery, the president decided the world was ready.

from the Wall Street Journal, 2009-Sep-28, by Brian Domitrovic:

Gross Domestic Happiness?
Why the French want to redefine economic growth.

French President Nicolas Sarkozy recently said he wanted the nations of the world to stop using GDP, or gross domestic product, as the main measure of their economic performance. He wants them instead to work up another metric that takes into account not only economic production but such things as environmental quality and even time not spent in traffic—a sort of gross national satisfaction index.

France has excellent reason to suppress GDP statistics. Since 1982, among developed nations, France has been a clear laggard in GDP growth. In the quarter century following 1982, France's GDP growth rate was a mere 2.1% per year in comparison to the U.S.'s 3.3%. Thus the U.S. grew at more than a 50% premium to France per year during that span. When the quarter century elapsed, Americans were one-third richer than the French.

France also lagged Britain, which over the 25-year period grew at 2.8% per year. Germany matched the French rate of 2.1%, but it had a good reason. A few years in, it had to absorb the post-communist economic basket case that was East Germany. About the only thing France can say about its GDP performance since 1982 is that it beat Italy's, which came in at a measly 1.8% per year.

France's poor GDP showing over this period was in stark contrast to the 1950s and 1960s, when it had long stretches of GDP growth at 6% per year. By the early 1980s, its GDP per capita was nearly that of the U.S. In other words, France achieved prosperity equal to what was enjoyed in America and then lost it.

There is a clear reason the inflection point was 1982. At that time, France chose not to participate in an international wave and transform its economy with a free-market revolution. In the early 1980s, Margaret Thatcher in Britain and Ronald Reagan in the U.S. shed governmental regulations on the economy, cut taxes, committed to not manipulating their currencies, and encouraged global trade. Their economies boomed, as did the economies of countries that followed their lead, such as South Korea and Taiwan.

In contrast, countries of "old Europe" such as France and Italy that were content to stand pat with an overregulated private sector and tax rates well above 50% were left in the dust. In 2003, as the Iraq war got going, France complained that the U.S. was the world's "hyperpower." Yet France itself was partly responsible for this fate. Had France committed to achieving high GDP growth via free-market incentives as the U.S. had in the 1980s and 1990s, it would have been appreciably richer in the 21st century, and thus a greater force in international power politics.

If Mr. Sarkozy's statisticians ever come up with their new economic index, they should be sure it includes leisure time—because that is one thing the French economy excels at producing. In 2004, the year he won the Nobel Prize, economist Edward Prescott asked, in the title of a journal article, "Why Do Americans Work So Much More Than Europeans?" The answer, he found, was tax rates.

Tax rates had fallen so much in the U.S. by that year that the American workforce couldn't wait to get on the job—or start a business—because you got to keep so much of what you earned. In contrast, high and progressive French taxes left over from the 1970s lured people away from work, especially as they started doing well. So people came to take seven-hour days and six-week vacations, as well as not show any particular interest in striking out on their own in a work-intensive small business.

The oldest and most pathetic trick in the book when you lose a contest is to try to move the goal posts. GDP statistics of the past quarter century have shamed France but flattered the U.S., Britain and East Asia. Mr. Sarkozy's gambit to paper over this real difference will be lucky to find any takers.

Mr. Domitrovic teaches at Sam Houston State University. He is author of "Econoclasts: The Rebels Who Sparked the Supply-Side Revolution and Restored American Prosperity," just out from ISI Books.

from the Guardian of London, 2009-Nov-2, by Julia Kollewe:

US businesses at risk as lender CIT Group files for bankruptcy

• Restructure enables CIT to cut debt and continue trading
• US taxpayers stand to lose last year's $2.3bn state bailout

Thousands of small and medium-sized businesses in the US face financial difficulties and could go out of business after lender CIT Group filed for bankruptcy protection last night.

Although the company will keep operating, it is unlikely to be able to make the same number of loans as before. CIT provides working capital to small firms such as shops, their suppliers and restaurants, many of whom are already struggling in the recession.

In one of the the biggest corporate failures in US history, CIT made its filing in the New York bankruptcy court yesterday, after a debt-exchange offer to bondholders failed. CIT said most of its bondholders have agreed a prepackaged reorganisation plan which will reduce total debt by $10bn (£6.1bn) while allowing the company to continue to do business.

The collapse is also bad news for US taxpayers, who stand to lose the $2.3bn provided last year to prop up the troubled lender.

Creditors will end up owning the company, while common and preferred shareholders – including the US government – will be wiped out by the plan. This is the government's biggest loss yet through its Troubled Asset Relief Programme (Tarp).

"The decision to proceed with our plan of reorganisation will allow CIT to continue to provide funding to our small business and middle-market customers, two sectors that remain vitally important to the US economy," said CIT's chairman and chief executive, Jeffrey Peek, who will step down by the end of the year.

But retail trade groups are worried that many shops will be left without financing – and stock – ahead of the crucial Christmas season, with traditional banks also cutting back credit.

CIT has provided funding to 2,000 firms that supply merchandise to more than 300,000 stores. About 60% of America's apparel industry depends on CIT for financing.

Harold Reichwald of law firm Manatt, Phelps & Phillips, said CIT's case is likely to force the company's customers to look elsewhere for financing.

"If I was a small businessman, I would say to myself, 'I have to find alternatives'," he said. "In this marketplace, there aren't a lot of alternatives."

from the Wall Street Journal, 2009-Oct-24, by Kimberley A. Strassel:

Business Fights Back
His organization under attack by the White House, the president of the Chamber of Commerce stands by his defense of free enterprise.

"One thing I can tell you: They can go out and chase me and chase the Chamber and put stuff in the newspaper. It only . . . drives more and more support. . . . You think we are going to blink because a couple of people are out shooting at us? Tell 'em to put their damn helmets on."

Them's fighting words, all the more so when delivered in the feisty, New York accent of U.S. Chamber of Commerce President Tom Donohue. The 71-year-old was recruited 12 years ago in order to revitalize a drifting business lobby. And the gregarious chief hasn't disappointed: He's grown the Chamber's membership, tripled its budget, transformed its lobby shop, and increasingly thrust it into the political fray. Most recently he's ginned up opposition to union "card check," the Environmental Protection Agency's (EPA) plans to regulate carbon emissions, and parts of the proposed financial overhaul.

The Obama administration's response has been to treat the Chamber like it has Fox News Channel: with brass knuckles. It has launched a campaign to undermine the organization by making CEOs think twice about associating with it. President Obama has openly criticized the Chamber, while adviser Valerie Jarrett has dismissed it as "old school" and acknowledged that the White House is bypassing it to work individually with CEOs.

When several major companies—including Exelon, Apple and Nike—ostentatiously quit the Chamber several weeks ago, provoking a flurry of unflattering headlines, it seemed no coincidence. Mr. Obama's allies in the unions, the trial bar and green lobbies have targeted the Chamber, some of its members, and Mr. Donohue personally.

For a man who prides himself on working both sides of the aisle, the Chamber these days is not a fun place for Mr. Donohue. Then again, he has an Irish temper and doesn't shrink from a brawl. At least for now, he's showing no signs of muting the Chamber's message.

"I did an interview a couple of week ago, and somebody said, 'Well, the White House says that you've become Dr. No and you are going to lose your seat at the table.' And I said, 'The White House doesn't give out the seats at the table. The seats at the table go to the people who have a rational policy, who have strong people to advance that policy, that have a strong grass-roots system, that have the assets to support their program, and that are willing to play in the political process," Mr. Donohue remarks, sitting in his office, which looks across Lafayette Park to the White House.

"The bottom line is you can't do this job if you are squeaky about all that stuff. My job is to represent the American business community in an honorable way, to present their interests in a way that I really think is good for them and good for this country. And," he adds with a pointed look, "I plan to keep doing it."

One irony of the Obama administration's demonization campaign is that Mr. Donohue is hardly a right-wing ideologue. There was a day, in the 1970s and 1980s, when the Chamber fought for limited government. But starting in the 1990s, the group became more interested in using Washington to forward a narrower corporate self-interest.

Mr. Donohue, who spent 13 years at the head of the American Trucking Association, also points out that the Chamber has done plenty to help the current administration. It supported last year's bailout funds ("we had to stabilize the banks"); the stimulus ("we could have gone into a real depression if there wasn't some confidence, some belief we could get over the next hump"); the auto bailouts ("this was a bellwether of the American company"), and even cash for clunkers.

If anything, the Chamber has irked conservatives with support of key aspects of the Obama agenda. Corporate America wants government to ease health-care costs, and the Chamber lobbied for a bill--at least until August, when it unleashed ads critical of the bloated Democratic proposals. Corporate America also wants the certainty of a cap-and-trade bill, and the Chamber has dutifully pushed for what Mr. Donohue describes as a "rational climate bill that keeps people employed, that uses our technology, that encourages global agreement and that is done by the Congress—not the EPA."

The Chamber, Mr. Donohue says unapologetically, has "built a great deal of goodwill . . . by representing companies on the broad issues that we have defined, and working real hard to come to a common benefit where most people benefit more than 80%." He continues: "People have criticized us for helping industries or individual companies. What the hell do you think we do? That's our business!" If health-care and climate-change legislation do pass, Mr. Donohue argues, they will be "much, much, much better than they ever would have been if we had sat here on our hands."

What really seems to bother the White House is less Chamber ideology than its effectiveness. "They are going to have to go after somebody, right? Of course they are going after the individual ones, the bankers, and the insurers—and that's after they made deals with them. But who would you go after? Companies can't do this themselves . . . When it gets tougher, we get in."

Going after the Chamber is nonetheless a risk. The lobby works with a lot of Congressional Democrats from swing districts. Those pols face tough races next year, and Chamber support can help them raise money and protect against GOP attacks. The White House campaign gives GOP candidates an opening to point out how much Democrats dislike business.

The Obama team has already had one bruising experience with the Chamber's power over card check, Big Labor's priority of getting rid of secret ballots in union elections. The Chamber launched a full-scale campaign against the union-backed bill with the Orwellian name, the "Employee Free Choice Act."

Mr. Donohue is blunt, singling out the SEIU, the Teamsters and other unions: "What they are trying to do is change the rules." Why? "They want a hell of a lot more members, so they can have a hell of a lot more political influence, so they can change the way this country runs."

He takes some credit for the fact that swing-state Democrats have backed away from that vote. "The labor unions spent $240 million . . . and they figured, well, we got the Senate, and we got the House, and we got the presidency, let's go do this thing. What they forgot were 300 million Americans and all kinds of people in this town who represent them, and that a lot of members were elected in red states as Democrats and have got to go back and run again there. So we got into this deal, spent some money—by the way, good manners, high integrity, very aggressive—and it's stuck against the wall right now. Some people are walking around about a compromise. There ain't gonna be a compromise! There's not the votes for that thing."

The Chamber has also irked the White House with its ads against the Consumer Financial Protection Agency, taking on the proposed agency's powers to regulate any business that extends credit to consumers—including butchers and bakers. Mr. Obama denounced the Chamber by name and called the ads "false."

Mr. Donohue says he recently talked to Mr. Obama's economic adviser Larry Summers in Colorado, who was upset about the ads as well. "I looked at those ads, they weren't disingenuous. Maybe they picked out a few things here and highlighted them that weren't the most important things. But those things are gone out of the bill now. When you are in a debate you don't always like what the other guy says."

Where the fight has become especially rough is over climate change. While supporting cap-and-trade legislation, the Chamber opposes the EPA's "endangerment" finding, which would allow the agency to unilaterally regulatecarbon.

The Chamber thinks it bad precedent to allow the EPA to stretch the Clean Air Act to encompass carbon. "It would put them in charge of every major construction and rehab project, every road, every bridge, every port, every big building. I mean, you wanna put people out of work?" Mr. Donohue says. "They'd have to hire an army—which they'd probably unionize—to do the permits."

Last year, the Chamber asked the EPA to hold a hearing on "endangerment." The goal was not to debate overall climate science, but to force the EPA to demonstrate, as a matter of law, that carbon is dangerous. Then in September, the Chamber's senior vice president for environment, Bill Kovacs, made the mistake of suggesting the hearing might be like a "Scopes monkey trial" on the science.

"My first inclination was to cut his head off, but then I remembered that I run my mouth on a regular basis. So I said, we owe you a few, forget it, now shut up and don't say that again. Because we lost the focus on why we are doing this."

The comment gave several companies an excuse to bail. Does he worry others will leave? "Give me a break, will you? We have 300,000 members. We can legally represent three million people," he retorts. "Now, I've been here for 12 years, and we lose four members every week! And we sign up six."

He also notes that the idea that every member is always going to agree on every policy is ludicrous. "Bring 10 people to Thanksgiving dinner. Can you agree on anything? You try to take, let's just say for the hell of it, one thousand core members. Let's get them to agree on where to go to lunch, what day it is, how we should approach global warming or medical care. Holy (bleep)! So we have a system here and it works. And sometimes people aren't always happy, but most companies look at this and say 'Okay, I've got seven major issues. So I have a little disagreement on this one, but I'm getting along well on those.'"

He doesn't dwell on it, but Mr. Donohue has himself been a target, including by the National Resources Defense Council, which has accused him of a conflict of interest because of his seat on the board of directors of Union Pacific, a company that would be affected by climate-change legislation. He thinks "personal attacks" are out of order, vowing "I won't do it to them. We could. I won't."

The White House's war on the Chamber has come just as the group is launching a new $100 million campaign promoting free enterprise.

"We want to encourage and promote and educate and get a bunch of enthusiasm behind . . . the free enterprise system with free capital markets and free trade and the ability to fail and fall right on your ass and get up and do it again!" he says.

The belief in that system, Mr. Donohue says, has been eroded by the recession and subsequent criticism of the free market. "The purpose of this is to get out of the doldrums! Quit sulking and worrying." He hopes the campaign will remind Americans that "We created 20 million jobs in the '90s, we can do it again. We don't have to do it exactly like that—Adam Smith didn't have a BlackBerry—but we ought to pay attention to what made it work."

Some Democrats who have been demagoguing business view the campaign as a poke in the eye, and the White House's Ms. Jarrett has criticized it. "It's not an attack on anyone," he insists. "We're just asking Americans of every form, shape, size, weight and responsibility to take a look at it. If this . . . system works so well, why don't we think about how we could use it to our benefit now."

The Chamber is three years away from its 100th anniversary, and the "Dream Big" campaign is aimed in part at ensuring that birthday is worth celebrating. "The people that started this thing and came here and did it, they left a legacy that can be seen in the American economy and American achievement and I'm not going to screw it up."

He ends our meeting with a grin and cheerful warning: "This is a great place. If you walk on our lawn, we're going to turn on the sprinklers."

from the Wall Street Journal, 2009-Oct-17, p.A12:

Cash for Clubbers
Congress's fabulous golf cart stimulus.

We thought cash for clunkers was the ultimate waste of taxpayer money, but as usual we were too optimistic. Thanks to the federal tax credit to buy high-mileage cars that was part of President Obama's stimulus plan, Uncle Sam is now paying Americans to buy that great necessity of modern life, the golf cart.

The federal credit provides from $4,200 to $5,500 for the purchase of an electric vehicle, and when it is combined with similar incentive plans in many states the tax credits can pay for nearly the entire cost of a golf cart. Even in states that don't have their own tax rebate plans, the federal credit is generous enough to pay for half or even two-thirds of the average sticker price of a cart, which is typically in the range of $8,000 to $10,000. "The purchase of some models could be absolutely free," Roger Gaddis of Ada Electric Cars in Oklahoma said earlier this year. "Is that about the coolest thing you've ever heard?"

The golf-cart boom has followed an IRS ruling that golf carts qualify for the electric-car credit as long as they are also road worthy. These qualifying golf carts are essentially the same as normal golf carts save for adding some safety features, such as side and rearview mirrors and three-point seat belts. They typically can go 15 to 25 miles per hour.

In South Carolina, sales of these carts have been soaring as dealerships alert customers to Uncle Sam's giveaway. "The Golf Cart Man" in the Villages of Lady Lake, Florida is running a banner online ad that declares: "GET A FREE GOLF CART. Or make $2,000 doing absolutely nothing!"

Golf Cart Man is referring to his offer in which you can buy the cart for $8,000, get a $5,300 tax credit off your 2009 income tax, lease it back for $100 a month for 27 months, at which point Golf Cart Man will buy back the cart for $2,000. "This means you own a free Golf Cart or made $2,000 cash doing absolutely nothing!!!" You can't blame a guy for exploiting loopholes that Congress offers.

The IRS has also ruled that there's no limit to how many electric cars an individual can buy, so some enterprising profiteers are stocking up on multiple carts while the federal credit lasts, in order to resell them at a profit later. We should note that some states, such as Oklahoma, have caught on to the giveaway and are debating whether to cancel or limit their state credits. But in Congress they're still on the driving range.

This golf-cart fiasco perfectly illustrates tax policy in the age of Obama, when politicians dole out credits and loopholes for everything from plug-in cars to fuel efficient appliances, home insulation and vitamins. Democrats then insist that to pay for these absurdities they have no choice but to raise tax rates on other things—like work and investment—that aren't politically in vogue. If this keeps up, it'll soon make more sense to retire and play golf than work for living.

from the Wall Street Journal, 2009-Oct-20, p.A20:

Another Hollywood Story
It's in Iowa, but it's no field of dreams.

One of the things we like most about Hollywood is the fact that so many people there share our preference for relatively lower rates of taxation. The big difference is that we say it loud and proud in these columns, and they sneak around in back alleys, so to speak, looking for tax breaks.

The latest evidence appeared on the Journal's front page yesterday, detailing the state of Iowa's hapless tax-credit program to lure Hollywood productions to the state. Needless to say, it worked until it blew up.

Hollywood production companies live out their lives in an Odysseus-like quest for low-tax locations to make films and TV programs. They'll go to Iowa, Louisiana, cross the border to Canada, even do business in New York City, so long as the Big Apple lets Hollywood off the high-tax hook it uses on people who live there.

Hollywood's biggest stars are the political world's biggest thumpers for luxe government and the candidates who will deliver it, except when they have to do real work. Iowa's program lured Tinsel Town with a whopping 50% tax credit for production costs in the state—payroll, food, living expenses. They even let the Rodeo Drive tax refugees apply the credit to the purchase of a car. In this field of schemes, one director bought a new Mercedes. Iowa's cash for clunkers.

Now the Iowa program is falling apart amid allegations of weak oversight and abuse—the usual problems that occur when a tax system loads up its survival on loopholes. Iowa's Democratic Governor Chet Culver has temporarily suspended the tax-credit program, asserting, "Iowans will not be taken for suckers." We knew that, but what about Iowa's politicians?

The larger issue beneath the Iowa fiasco has to do with using tax credits as a policy tool. Almost without exception, we think tax credits are bad policy. Politicians come to think of them almost literally as pots of gold at the end of their favorite rainbow, as the Obama Administration is doing for "green" technology and green everything.

It's an idea that eventually breeds inefficiency, high cost and even corruption. This is where we'd normally propose a lower, flatter, simpler tax system as the alternative to this recurring mess, but oh, never mind.

from the Associated Press, 2009-Oct-29, by Brett J. Blackledge and Matt Apuzzo:

Stimulus jobs overstated by thousands

WASHINGTON - An early progress report on President Barack Obama's economic recovery plan overstates by thousands the number of jobs created or saved through the stimulus program, a mistake that White House officials promise will be corrected in future reports.

The government's first accounting of jobs tied to the $787 billion stimulus program claimed more than 30,000 positions paid for with recovery money. But that figure is overstated by least 5,000 jobs, according to an Associated Press review of a sample of stimulus contracts.

The AP review found some counts were more than 10 times as high as the actual number of jobs; some jobs credited to the stimulus program were counted two and sometimes more than four times; and other jobs were credited to stimulus spending when none was produced.

For example:

—A company working with the Federal Communications Commission reported that stimulus money paid for 4,231 jobs, when about 1,000 were produced.

—A Georgia community college reported creating 280 jobs with recovery money, but none was created from stimulus spending.

—A Florida child care center said its stimulus money saved 129 jobs but used the money on raises for existing employees.

There's no evidence the White House sought to inflate job numbers in the report. But administration officials seized on the 30,000 figure as evidence that the stimulus program was on its way toward fulfilling the president's promise of creating or saving 3.5 million jobs by the end of next year.

The reporting problem could be magnified Friday when a much larger round of reports is expected to show hundreds of thousands of jobs repairing public housing, building schools, repaving highways and keeping teachers on local payrolls.

The White House says it is aware there are problems. In an interview, Ed DeSeve, an Obama adviser helping to oversee the stimulus program, said agencies have been working with businesses that received the money to correct mistakes. Other errors discovered by the public also will be corrected, he said.

"If there's an error that was made, let's get it fixed," DeSeve said.

The White House released a statement early Thursday that it said laid out the "real facts" about how jobs were counted in the stimulus data distributed two weeks ago. It said that had been a test run of a small subset of data that had been subjected only to three days of reviews, that it had already corrected "virtually all" the mistakes identified by the AP and that the discovery of mistakes "does not provide a statistically significant indication of the quality of the full reporting that will come on Friday."

The data partially reviewed by the AP for errors included all the data presently available, representing all known federal contracts awarded to businesses under the stimulus program. The figures being released Friday include different categories of stimulus spending by state governments, housing authorities, nonprofit groups and other organizations.

As of early Thursday, on its recovery.org Web site, the government was still citing 30,383 as the actual number of jobs linked so far to stimulus spending, despite the mistakes the White House has now acknowledged and said were being corrected.

It's not clear just how far off the 30,000 claim was. The AP's review was not an exhaustive accounting of all 9,000 contracts, but homed in on the most obvious cases where there were indications of duplications or misinterpretations.

While the thousands of overstated jobs represent a tiny sliver of the overall economy, they represent a significant percentage of the initial employment count credited to the stimulus program.

Tom Gavin, a spokesman for the White House budget office, attributed the errors to officials as well as recipients having to conduct such reporting for the first time.

In fact, the AP review shows some businesses undercounted the number of jobs funded under the stimulus program by not reporting jobs saved.

Here are some of the findings:

—Colorado-based Teletech Government Solutions on a $28.3 million contract with the Federal Communications Commission for creation of a call center, reported creating 4,231 jobs, although 3,000 of those workers were paid for five weeks or less.

"We all felt it was an appropriate way to represent the data at the time" and the reporting error has been corrected, said company president Mariano Tan.

—The Toledo, Ohio-based Koring Group received two FCC contracts, again for call centers. It reported hiring 26 people for each contract, or a total of 52 jobs, but cited the same workers for both contracts. The jobs only lasted about two months.

The FCC spotted the problem. The company's owner, Steve Holland, acknowledged the actual job count is closer to five and blamed the problem on confusion about the reporting.

The AP's review identified nearly 600 contracts claiming stimulus money for more than 2,700 jobs that appear to have similar duplicated counts.

—Barbara Moore, executive director of the Child Care Association of Brevard County in Cocoa, Fla., reported that the $98,669 she received in stimulus money saved 129 jobs at her center, though the cash was used to give her 129 employees a 3.9 percent cost-of-living raise. She said she needed to boost their salaries because some workers had left "because we had not been able to give them a raise in four years."

—Officials at East Central Technical College in Douglas, Ga., said they now know they shouldn't have claimed 280 stimulus jobs linked to more than $200,000 to buy trucks and trailers for commercial driving instruction, and a modular classroom and bathroom for a health education program.

"It was an error on someone's part," said Mike Light, spokesman for the Technical College System of Georgia. The 280 were not jobs, but the number of students who would benefit, he said.

—The San Joaquin, Calif., Regional Rail Commission reported creating or saving 125 jobs as part of a stimulus project to lay railroad track. Because the project drew from two pools of money, the commission reported the jobs figure twice, bringing the total to 250 on the government report. Spokesman Thomas Reeves said the commission corrected the data Tuesday.

from the Associated Press, 2009-Nov-4, by Brett J. Blackledge and Matt Apuzzo:

STIMULUS WATCH: Salary raise counted as saved job

WASHINGTON — President Barack Obama's economic recovery program saved 935 jobs at the Southwest Georgia Community Action Council, an impressive success story for the stimulus plan. Trouble is, only 508 people work there.

The Georgia nonprofit's inflated job count is among persisting errors in the government's latest effort to measure the effect of the $787 billion stimulus plan despite White House promises last week that the new data would undergo an "extensive review" to root out errors discovered in an earlier report.

About two-thirds of the 14,506 jobs claimed to be saved under one federal office, the Administration for Children and Families at Health and Human Services, actually weren't saved at all, according to a review of the latest data by The Associated Press. Instead, that figure includes more than 9,300 existing employees in hundreds of local agencies who received pay raises and benefits and whose jobs weren't saved.

That type of accounting was found in an earlier AP review of stimulus jobs, which the Obama administration said was misleading because most of the government's job-counting errors were being fixed in the new data.

The administration now acknowledges overcounting in the new numbers for the HHS program. Elizabeth Oxhorn, a spokeswoman for the White House recovery office, said the Obama administration was reviewing the Head Start data "to determine how and if it will be counted."

But officials defended the practice of counting raises as saved jobs.

"If I give you a raise, it is going to save a portion of your job," HHS spokesman Luis Rosero said.

The latest stimulus report, released Friday, significantly overstates the number of jobs spared with money from programs serving families and children, mostly the Head Start preschool program. The report shows hundreds of the programs used nearly $323 million to provide pay raises and other benefits to their existing employees.

The raises themselves were appropriate — the stimulus law set aside money for Head Start salary increases — but converting that number into jobs proved difficult. The Obama administration told Head Start officials to consider a fraction of each employee as a job saved.

"That's more than ridiculous," said Antonia Ferrier, a spokeswoman for Republican House Minority Leader John Boehner.

Many Head Start programs around the country went further, counting everyone who received a raise as a job saved.

"It's a glitch in the system," said Ben Allen, the research director at the National Head Start Association. "There was some misunderstanding among some in the Head Start community about completing the reporting requirements."

Allen said a cost-of-living adjustment "may not be viewed traditionally as a job saved, but one could interpret it that, by providing COLA, you're retaining staff."

The Bergen County Community Action Program in Hackensack, N.J., noted the nearly $213,000 it received went to cover raises for existing staff only, but it also reported saving 85 jobs.

At Southwest Georgia Community Action Council in Moultrie, Ga., director Myrtis Mulkey-Ndawula said she followed the guidelines the Obama administration provided. She said she multiplied the 508 employees by 1.84 — the percentage pay raise they received — and came up with 935 jobs saved.

"I would say it's confusing at best," she said. "But we followed the instructions we were given."

Ed DeSeve, who oversees the stimulus at the White House, said the Head Start numbers "represent a few percent of all jobs reported" and said the problems would probably be balanced out by other errors that underreported jobs.

"So we don't expect any corrections to this data to meaningfully impact the total 640,000 direct jobs," DeSeve said.

More than 250 other community agencies in the U.S. similarly reported saving jobs when using the money to give pay raises, to pay for training and continuing education, to extend employee work hours or to buy equipment, according to their spending reports.

Other agencies didn't count the raises as jobs saved, reporting zero jobs.

Last week's stimulus report claimed 640,000 jobs saved or created by the economic recovery plan so far. Those jobs came from 156,614 federal contracts, grants and loans awarded to more than 62,000 recipients, worth a total of $215 billion.

Obama has promised the stimulus would save or create 3.5 million jobs by the end of next year, and the data released Friday represented the first head count toward that goal.

from the New York Times, 2009-Oct-16, p.A17, by Michael Cooper and Ron Nixon:

Job Program Found to Miss Many States That Need It Most

Businesses with federal stimulus contracts have created few jobs in states with the worst unemployment rates, according to data released Thursday by the federal government.

The new jobs reported Thursday come from a small slice of a sliver of the $787 billion stimulus program: the roughly $16 billion worth of stimulus contracts that were awarded directly by federal agencies, of which about $2.2 billion has been spent so far. But the preliminary data represented the first time that the federal government has reported actual job figures, and not just job estimates, and they provided the most complete snapshot yet of how one component of the sprawling program — direct federal contracts — was shaping up.

One thing was clear: while the federal contracts have created or saved 30,383 jobs, they were not directed to states with the highest jobless rates. Businesses in Michigan, whose 15.2 percent unemployment rate in August was the highest in the nation, reported creating or saving about 400 jobs. Businesses in Nevada, which had the next highest unemployment rate, reported 159. And businesses in Rhode Island, which had the third-highest unemployment rate, 12.8 percent, reported the fewest jobs: just six.

More jobs, by contrast, were reported in some of the states with lowest unemployment rates. Businesses in North Dakota, whose 4.3 percent unemployment rate was the lowest in the nation, reported creating or saving 219. The most jobs were reported in Colorado, whose 7.3 percent unemployment rate was below the national average that reached 9.8 percent last month, and where businesses reported creating or saving 4,695 jobs.

In many cases federal agencies could not steer their contracts to high-unemployment areas: the stimulus act gave the agencies money for existing federal programs and priorities. So the roughly $6 billion that the Department of Energy was given to clean up nuclear sites, for example, which was the biggest source of federal contracts, must be spent where the nuclear waste is.

The data yielded some interesting political tidbits. While no Republicans in the House voted for the stimulus bill, the five Congressional districts that appeared to be getting the most money in federal stimulus contracts so far are all represented by Republicans. And though Democrats control the House, it appeared that more money was being spent for work in districts held by Republicans.

The new jobs figures by themselves did not shed much light on the question of how well the stimulus program was accomplishing President Obama's goal of saving or creating 3.5 million jobs over two years. The administration estimates that the program has already created or saved one million jobs — a figure that includes jobs from money that went through states, which will not be reported until the end of the month; layoffs that were averted when the stimulus gave fiscal relief to states; and jobs that were created or saved when people spent their tax cuts or other aid. But with the unemployment rate at 9.8 percent, Republicans are asserting that the program is failing to create enough jobs.

The data posted Thursday on the stimulus Web site, recovery.gov, was preliminary; recipients can still change errors, and government officials said that based on past experience there were likely to be many. But the Web site is part of a pledge by the Obama administration and Congress to make the stimulus spending transparent. It has a map allowing people to see how many contracts were awarded in their states, their Congressional districts, or even in their ZIP codes, and how many jobs the recipients of those contracts are claiming.

White House officials were sensitive to the gulf between the 30,383 jobs in the report and the goal of creating or saving 3.5 million jobs. Jared Bernstein, the chief economist for Vice President Joseph R. Biden Jr., who oversees the stimulus, issued a statement saying that the jobs figure exceeded their expectations but cautioning that “it is too soon to draw any global conclusions from this partial and preliminary data.”

from the Wall Street Journal, 2009-Oct-20, p.A20:

The State of Joblessness
The tragedy of Jennifer Granholm's Michigan.

State lawmakers will soon face large budget deficits again, perhaps as much as $100 billion across the U.S. Here's some free budget-balancing advice: Steer clear of the Michigan model. The Wolverine state is once again set to run out of money, and it is once again poised to raise taxes even as jobs and businesses disappear.

In 2007 Governor Jennifer Granholm signed the biggest tax increase in Michigan history, with most of the $1.4 billion coming from business. The personal income tax—which hits nonincorporated small businesses—was raised to 4.2% from 3.95%, and the Michigan business tax levied a surcharge of 22%. The tax money was dedicated to the likes of education, public works, job retraining and corporate subsidies. Ms. Granholm and her union allies called these "investments," and the exercise was widely applauded as a prototype of "progressive" budgeting.

Some prototype. Every state has seen a big jump in joblessness since 2007, but with a 15.2% unemployment rate Michigan's jobs picture is by far the worst. Some 750,000 private-sector payroll jobs have vanished since the start of the decade. For every family that has moved into Michigan since 2007, two have sold their homes and left.

Meanwhile, the new business taxes didn't balance the budget. Instead, thanks to business closures and relocations, tax receipts are running nearly $1 billion below projections and the deficit has climbed back to $2.8 billion. As the Detroit News put it, Michigan businesses are continually asked "to pay more in taxes to erase a budget deficit that, despite their contributions, never goes away." And this is despite the flood of federal stimulus and auto bailout cash over the last year.

Following her 2007 misadventure, Ms. Granholm promised: "I'm not ever going to raise taxes again." That pledge lasted about 18 months. Now she wants $600 million more. Among the ideas under consideration: an income tax increase with a higher top rate, a sales tax on services, a freeze on the personal income tax exemption (which would be a stealth inflation tax on all Michigan families), a 3% surtax on doctors, and fees on bottled water and cigarettes. To their credit, Republicans who control the Michigan Senate are holding out for a repeal of the 22% business tax surcharge.

As for Ms. Granholm, she and House speaker Andy Dillon continue to bow to public-sector unions. There are now 637,000 public employees in Michigan compared to fewer than 500,000 workers left in manufacturing. Government is the largest employer in the state, but the number of taxpayers to support these government workers is shrinking. The budget deadline is November 1, and Ms. Granholm is holding out for tax increases rather than paring back state government.

The decline in auto sales has hurt Michigan more than other states, but the state's economy would have been better equipped to cope without Ms. Granholm's policy mix of higher taxes in order to spend more money on favored political and corporate interests. If any larger good can come of the experience, it is that Michigan is teaching other states how not to govern.

from the Wall Street Journal, 2009-Oct-15, p.A16:

Acorn's Ally at the NLRB
Obama appoints an SEIU man with ties to Blago.

One of Big Labor's priorities in Washington is to place allies in key government jobs where they can overturn existing labor policy without battles in Congress. This is a very good reason for the Senate to hold a hearing on the nomination of Craig Becker to the National Labor Relations Board (NLRB).

Mr. Becker is associate general counsel at the Service Employees International Union (SEIU), which is most recently in the news for its close ties to Acorn, the disgraced housing shakedown operation. President Obama nominated Mr. Becker in April to the five-member NLRB, which has the critical job of supervising union elections, investigating labor practices, and interpreting the National Labor Relations Act. In a 1993 Minnesota Law Review article, written when he was a UCLA professor, Mr. Becker argued for rewriting current union-election rules in favor of labor. And he suggested the NLRB could do this by regulatory fiat, without a vote of Congress.

Yet now that he could soon have the power to act on this conviction, Mr. Becker won't tell Congress if this is what he still believes. In written responses to questions from Republican Orrin Hatch, Mr. Becker promised only to "maintain an open mind about whether [his] suggestions should be implemented in any manner." That sounds like his mind is made up but he won't admit it lest it hurt his confirmation.

Mr. Becker also won't give a clear answer about his role in preparing several pro-labor executive orders issued by President Obama shortly after inauguration. Mr. Becker's name was found in at least one of the documents, suggesting that he had written it.

When asked by Sen. Hatch if he was "involved or responsible in any way" for these executive orders, Mr. Becker responded: "I was not responsible for [the specific executive orders] except as described below. As a member of the Presidential Transition Team, I was asked to provide advice and information concerning a possible executive order of the sort described. I was involved in researching, analyzing, preliminary drafting, and consulting with other members of the Transition team." In other words, Mr. Becker was the main author but would rather not say so explicitly.

Why not? Well, perhaps because Mr. Becker seems to have been on the SEIU payroll at the time he did his "drafting." Many people take leaves of absence from their private jobs when serving on a transition team, but Mr. Becker says he was on "vacation." And his "vacation" seems to have been sporadic. "My work on the Transition Team was not full time or continuous . . . When I was not on vacation in order to work on the Transition Team, I continued to perform my regular work for both SEIU and the AFL-CIO." The White House has made a public show of banning paid lobbyists from certain Administration jobs, but it let a paid union operative draft government documents benefiting unions.

There's more. One of the many accusations leveled against former Illinois Governor Rod Blagojevich is that he accepted money from the SEIU in return for taking actions giving collective bargaining rights to Illinois home health-care workers. While Mr. Becker denies any knowledge of, or role in, contributions to the former Governor, he does admit that he provided "advice and counsel to SEIU relating to proposed executive orders and proposed legislation giving homecare workers a right to organize and engage in collective bargaining under state law."

Mr. Becker says he "worked with and provided advice" to SEIU Local 880 in Chicago, a beneficiary of the newly unionized health workers, and one of two SEIU locals currently in the national spotlight for its deep ties with Acorn. Mr. Becker denies working for Acorn or its affiliates, but as recently as April Acorn co-founder Wade Rathke praised Mr. Becker by name, noting "For my money, Craig's signal contribution has been his work in crafting and executing the legal strategies and protections which have allowed the effective organization of informal workers, and by this I mean home health-care workers."

The NLRB has both GOP and Democratic members, and nominees are typically packaged together to avoid hearings. In this case, the GOP nominee is Brian Hayes, an aide to Senator Mike Enzi (R., Wyo.), who is eager to see Mr. Hayes confirmed with Mr. Becker and another Democrat, Mark Pearce. But Mr. Becker would sit with the majority, with the ability to dictate labor policy, and the stakes are too high to let him pass without more Senate and public scrutiny.

from the Wall Street Journal, 2009-Oct-11:

Job Creation 101
A hiring tax credit returns from the dead.

The White House is finally coming to realize that taxes affect job creation. Terrific. Its solution seems to be to bribe employers for hiring new workers, albeit only for a couple of years. Less than terrific.

Alarmed by the rising jobless rate, Democrats are scrambling to "do something" to create jobs. You may have thought that was supposed to be the point of February's $780 billion stimulus plan, and indeed it was. White House economists Christina Romer and Jared Bernstein estimated at the time that the spending blowout would keep the jobless rate below 8%.

Team Obama's estimate of the impact of its spending program on employment, compared to the actual jobless rate

The nearby chart compares the job estimates the two economists used to help sell the stimulus to the American public to the actual jobless rate so far this year. The current rate is 9.8% and is expected to rise or stay high well into the election year of 2010. Rarely in politics do we get such a clear and rapid illustration of a policy failure.

This explains why political panic is beginning to set in, and various panicky ideas to create more jobs are suddenly in play. The New York Times reports that one plan would grant a $3,000 tax credit to employers for each new hire in 2010. Under another, two-year plan, employers would receive a credit in the first year equal to 15.3% of the cost of adding a new worker, an amount that would be reduced to 10.2% in the second year and then phased out entirely. Why 15.3%? Presumably because that's roughly the cost of the payroll tax burden to hire a new worker.

The irony of this is remarkable, considering the costs that Democrats are busy imposing on job creation. Congress raised the minimum wage again in July, a direct slam at low-skilled and young workers. The black teen jobless rate has since climbed to 50.4% from 39.2% in two months. Congress is also moving ahead with a mountain of new mandates, from mandatory paid leave to the House's health-care payroll surtax of 5.4%. All of these policy changes give pause to employers as they contemplate the cost of new hires—a reality that Democrats are tacitly admitting as they now plot to find ways to offset those higher costs.

Alas, their new ideas are little more than political gimmicks that aren't likely to result in many new jobs. Congress doesn't want to give up revenue for very long, so it would make the tax credits temporary. Thus anyone who is hired would have to be productive enough to justify the wage or salary after the tax-credit expires—or else the job is likely to end. An employer would be better off hiring a temp worker and saving on the benefits for the same couple of years.

The tax credit would also inevitably go to some employers already planning to hire, or reward companies that lay off some workers only to hire others to take advantage of the tax credit. And it would reward parts of the country that are growing, such as Texas, at the expense of those that aren't, such as Michigan. In other words, it is a very inefficient business subsidy.

We know all this because a new jobs tax credit has already been tried—in the Carter Administration. In 1977 as he entered the White House, Jimmy Carter proposed a jobs credit and a Democratic Congress passed it. Its unfortunate history was recounted in 1980 by then-Treasury official Emil Sunley in a chapter of "The Economics of Taxation," a book edited by Henry Aaron and Michael Boskin for the Brookings Institution.

As Mr. Sunley summarized: "The impact of the credit on jobs was slight. In many firms those who make hiring decisions did not understand the firm's tax status." He added that, "Because the capital stock is fixed in the short run, to increase employment significantly, demand for output must increase. An incremental tax cut tied to employment will not by itself generate that increase in demand. Moreover, a temporary incremental credit is unlikely to affect significantly the long-run substitution of labor for capital." Call this Job Creation 101.

President Obama first floated the hiring credit in January, but it died after opposition from Democrats who seemed to get the joke. "If you have a company and you're selling fewer shingles, $3,000 isn't going to get you to hire somebody when your sales are shrinking," said Senator Chuck Schumer. Yet now even some Republicans, such as House GOP whip Eric Cantor, are saying they're receptive to the idea. Mr. Cantor ought to know better.

The lack of U.S. job creation is a big problem, but the quickest way Washington could help would be to stop imposing more financial burdens on hiring. And if Democrats really want to reduce taxes on labor, the cleanest way would be to reduce the payroll tax rate. They could finance a permanent payroll cut by using the $300-$400 billion or more in unspent stimulus money, rather than continuing with the transfer payments and pork barrel spending that have failed so miserably to create jobs.

from the Wall Street Journal's Political Diary, 2009-Oct-23, by Joseph Rago:

Bending the Curve - Up

Supposedly the whole point of ObamaCare was to "bend the curve" and reduce the growth rate of health-care spending. Everyone now knows it will do the opposite -- as at least one corner of the Obama Administration is willing to admit.

This week, the Office of the Actuary at the Centers for Medicare & Medicaid Services, or CMS, released a cost estimate for the House health bill. Its projections mostly track those issued by the Congressional Budget Office, but CMS does ask some questions that CBO so far hasn't pursued. The results aren't pretty.

CMS estimates the House bill would add 2.1 percentage points to the (already high) annual growth rate of national health spending. In 2019, when the second decade of ObamaCare would kick in, the bill would add 2.7 points to the growth rate.

CMS also observes that the "game changers" President Obama and especially budget chief Peter Orszag used to promote, like comparative effectiveness research and more wellness programs, are actually nonchangers. They'll save a pitiful $2.1 billion over a decade -- about 0.002% of the $1.042 trillion in new spending authorized by the House bill.

Even the good news isn't so good. CMS says spending growth would be even higher except that so many more people will receive their care from government, allowing Washington to economize through "sizable discounts imposed on providers," which is one way of putting it. (Another way of putting it: Expect long lines and shabbier treatment as fewer doctors are willing to treat government-insured patients.) In fact, CMS estimates that seven years after the bill's provisions take effect, government's share of total health-care spending will have risen to 55% from today's 47%. Single payer, here we come. Single payer, here we come.

The White House is telling nervous Democrats to ignore the report, since the House bill will be merged with others before a final product is completed. As one Hill staffer puts it: "Isn't that a bit like saying don't worry about the ingredients of a cigarette because once we roll them all together it will be healthy for you?"

from the Wall Street Journal, 2009-Oct-28, p.A22:

The WellPoint Revelation
Private insurance premiums could triple under ObamaCare.

Washington is captivated by the Senate melodrama over the so-called public option, salivating at the ring of Harry Reid's political bell (see below). But the most important health-care questions continue to be about the policy substance—particularly those that Democrats don't want asked.

Foremost among them is: How will ObamaCare affect insurance premiums in the private health-care markets? Despite indignant Democratic denials, the near-certainty is that their plan will cause costs to rise across the board. The latest data on this score come from a series of state-level studies from the insurance company WellPoint Inc.

At the request of Congressional delegations worried about their constituents—call it a public service—WellPoint mined its own actuarial data to model ObamaCare in the 14 states where it runs Blue Cross plans. The study therefore takes into account market and demographic differences that other industry studies have not, such as the one from the trade group America's Health Insurance Plans, which looked at aggregate national trends.

In all of the 14 states WellPoint scrutinized, ObamaCare would drive up premiums for the small businesses and individuals who are most of WellPoint's customers. (Other big insurers, like Aetna, focus on the market among large businesses.) Young and healthy consumers will see the largest increases—their premiums would more than triple in some states—though average middle-class buyers will pay more too.

Not even two hours after Wellpoint had presented its materials on the Hill, Democrats were already trashing it—which, considering that it runs to some 238 pages and took weeks to prepare, must have required remarkable powers of digestion and analysis.

"This is yet another insurance-industry report that twists the facts to produce a skewed result," averred Linda Douglass, the White House communications director on health care. Said a spokesman for the Senate Finance Committee, "This is akin to the tobacco companies commissioning another study claiming nicotine isn't addictive and cigarettes don't cause cancer." So in its Saul Alinsky fashion, the White House again attacks the messenger so it can avoid rebutting the message.

In fact, what distinguishes the Wellpoint study is its detailed rigor. Take Ohio, where a young, healthy 25-year-old living in Columbus can purchase insurance from WellPoint today for about $52 per month in the individual market. WellPoint's actuaries calculate the bill will rise to $79 because Democrats are going to require it to issue policies to anyone who applies, even if they've waited until they're sick to buy insurance. Then they'll also require the company to charge everyone nearly the same rate, bringing the premium to $134. Add in an extra $17, since Democrats will require higher benefit levels, and a share of the new health industry taxes ($6), and monthly premiums have risen to $157, a 199% boost.

Meanwhile, a 40-year-old husband and wife with two kids would see their premiums jump by 122%—to $737 from $332—while a small business with eight employees in Franklin County would see premiums climb by 86%. It's true that the family or the individual might qualify for subsidies if their incomes are low enough, but the business wouldn't qualify under the Senate Finance bill WellPoint examined. And even if there are subsidies, the new costs the bill creates don't vaporize. They're merely transferred to taxpayers nationwide—or financed with deficits, which will be financed eventually with higher taxes.

The story is largely the same from state to state, though the increases are smaller in the few states that have already adopted the same mandates and regulations that Democrats want to impose on all states. For the average small employer in high-cost New York, for instance, premiums would only rise by 6%. But they'd shoot up by 94% for the same employer in Indianapolis, 91% in St. Louis and 53% in Milwaukee.

A family of four with average health in those same cities would all face cost increases of 122% buying insurance on the individual market. And it's important to understand that these are merely the new costs created by ObamaCare—not including the natural increases in medical costs over time from new therapies and the like.

Democrats have been selling health care as one huge free lunch in which everyone gets better insurance while paying less. But the policy facts simply don't add up, and Democrats are attacking WellPoint because they don't want anyone to understand what their health-care schemes will mean in practice. Democrats know that if the public is given the facts and the time to consider them, Americans might demand that Democrats stop pushing the country off this cliff and start all over.

from FOXNews.com, 2009-Oct-12, by John Lott:

Baucus Bill Encourages Americans to DROP Insurance Coverage

Mr. President, if this is what you meant when you said that you wouldn't "mess" with people's insurance if they were happy with it, we don't need your help.

What if you, and every member of your family, had the chance to save $4,000 each?. Would you be interested? Under the terms of what's being called "the Baucus bill" -- Washington-speak for the bill the Senate Finance Committee will vote on tomorrow -- that is how much you could save by dropping your health insurance.

People might have thought that health care reform would lead to an increase in the number of people getting health insurance coverage. Indeed, the Congressional Budget Office claims the Senate Finance Committee's health care bill will reduce the number of uninsured in 2019 by about 29 million," but the financial rewards are huge for people if they drop their insurance. Amazingly the CBO makes this prediction of 29 million more insured Americans without ever once analyzing the financial incentive for those who are already insured to drop their insurance.

Consider some numbers. In 2008, the average price of an individual insurance policy was $4,704 and it was $12,682 for a family of four. But the Baucus bill explicitly states that insurance companies "would be prohibited from excluding coverage for pre-existing health conditions."

Thus, you may wait until you have been diagnosed with cancer or are pregnant or have some other problem to purchase insurance. True, there is a fine if you do not buy insurance but it is very small compared to the actual price of the insurance. The fine will eventually reach "$750 per adult in the household. This per adult penalty would also be phased in: For 2013, $0; $200 for 2014; $400 for 2015; $600 in 2016 and $750 in 2017." Even if the cost of insurance didn't rise by 2019, which is extremely doubtful, paying the fine and waiting until you're sick before you got insurance would easily save you $4,000 per person insured. -- Every American could save thousands of dollars, every year, by waiting to buy insurance until they are seriously ill or get pregnant. This would affect a lot of people. Although not everyone may immediately feel comfortable dropping their insurance, especially those with minor health problems, many people will. And more and more will do so as the price of the "same" insurance keeps on increasing.

Could you imagine what it would be like if you could buy auto insurance right after you have had an accident and then be allowed to immediately drop it again once the car was fixed? Everyone would understand that's not how insurance works. The "insurance" fee would be the price of what it costs to get the car fixed plus the administrative costs of handling the "insurance."

The same applies to health care. -- The more people who shy away from buying insurance when they are healthy, the higher the price of insurance will be for those who buy it when they are ill. -- There will be a quick unraveling of the insurance system as everyone suddenly realizes that insurance has become something you only need to buy when you are really sick. Of course, this means that insurance companies will stop insuring people and, instead, health care will be transformed into a fee for service system.

The proposed "Baucus bill" health care reform would thus both dramatically reduce the number of people with insurance and dramatically increase insurance premiums. Of course, that's just the opposite of how the program is being sold.

Mr. President, if this is what you meant when you said that you wouldn't "mess" with people's insurance if they were happy with it, we don't need your help.

John R. Lott, Jr. is a FOXNews.com contributor. He is an economist and author of "Freedomnomics."

from the Wall Street Journal, 2009-Oct-20, p.A20:

Health Costs and History
Government programs always exceed their spending estimates.

Washington has just run a $1.4 trillion budget deficit for fiscal 2009, even as we are told a new health-care entitlement will reduce red ink by $81 billion over 10 years. To believe that fantastic claim, you have to ignore everything we know about Washington and the history of government health-care programs. For the record, we decided to take a look at how previous federal forecasts matched what later happened. It isn't pretty.

Let's start with the claim that a more pervasive federal role will restrain costs and thus make health care more affordable. We know that over the past four decades precisely the opposite has occurred. Prior to the creation of Medicare and Medicaid in 1965, health-care inflation ran slightly faster than overall inflation. In the years since, medical inflation has climbed 2.3 times faster than cost increases elsewhere in the economy. Much of this reflects advances in technology and expensive treatments, but the contrast does contradict the claim of government as a benign cost saver.

Next let's examine the record of Congressional forecasters in predicting costs. Start with Medicaid, the joint state-federal program for the poor. The House Ways and Means Committee estimated that its first-year costs would be $238 million. Instead it hit more than $1 billion, and costs have kept climbing.

Thanks in part to expansions promoted by California's Henry Waxman, a principal author of the current House bill, Medicaid now costs 37 times more than it did when it was launched—after adjusting for inflation. Its current cost is $251 billion, up 24.7% or $50 billion in fiscal 2009 alone, and that's before the health-care bill covers millions of new beneficiaries.

Medicare has a similar record. In 1965, Congressional budgeters said that it would cost $12 billion in 1990. Its actual cost that year was $90 billion. Whoops. The hospitalization program alone was supposed to cost $9 billion but wound up costing $67 billion. These aren't small forecasting errors. The rate of increase in Medicare spending has outpaced overall inflation in nearly every year (up 9.8% in 2009), so a program that began at $4 billion now costs $428 billion.

The Medicare program for renal disease was originally estimated in 1973 to cover 11,000 participants. Today it covers 395,000, at a cost of $22 billion. The 1988 Medicare home-care benefit was supposed to cost $4 billion by 1993, but the actual cost was $10 billion, because many more people participated than expected. This is nearly always the case with government programs because their entitlement nature—accepting everyone who meets the age or income limits—means there's no fixed annual budget.

One of the few health-care entitlements that has come in well below the original estimate is the 2003 Medicare prescription drug bill. Those costs are now about one-third below the original projections, according to the Medicare actuaries. Part of the reason is lower than expected participation by seniors and savings from generic drugs.

But as White House budget director Peter Orszag told Congress when he ran the Congressional Budget Office, the "primary cause" of these cost savings is that "the pricing is coming in better than anticipated, and that is likely a reflection of the competition that's occurring in the private market." The Centers for Medicare and Medicaid Services agrees, stating that "the drug plans competing for Medicare beneficiaries have been able to establish greater than expected savings from aggressive price negotiation." It adds that when given choices "beneficiaries have overwhelmingly selected less costly drug plans."

Yet liberal Democrats fought that private-competition model (preferring government drug price controls), just as they are trying to prevent private health plans from competing across state borders now.

The lesson here is that spending on nearly all federal benefit programs grow relentlessly once they are established. This history won't stop Democrats bent on ramming their entitlement into law. But every Member who votes for it is guaranteeing larger deficits and higher taxes far into the future. Count on it.

from the Los Angeles Times, 2009-Oct-20, by Kim Geiger:

Bill would halt reductions of Medicare payments to doctors

The legislation is designed to bridge the almost $250-billion gap between the healthcare overhaul proposals by the House and the Senate.

Reporting from Washington - In an effort to reconcile a nearly $250-billion difference between the House and Senate approaches to overhauling healthcare, Senate Majority Leader Harry Reid (D-Nev.) is pushing a bill to halt scheduled reductions in Medicare payments to physicians.

The measure, introduced last week by Sen. Debbie Stabenow (D-Mich.), would end the cuts and set Medicare payment rates at current levels. Doing so would allow Democrats to maintain the American Medical Assn.'s support for an overhaul without having to absorb the cost of higher doctor payments in the final healthcare bill.

The current formula imposes cuts to doctors when Medicare spending outpaces growth in the gross domestic product. Each year, Congress intervenes to ignore the cuts -- it sometimes has even increased payment rates -- at the behest of the AMA and other physician groups. The result has been an accumulation of rate cuts totaling 21% next year.

While there is consensus in Congress that the payment system should be fixed, Republicans and some conservative Senate Democrats have said they won't support a bill that adds to the nation's red ink. The proposed change would cost about $245 billion.

"They're doing it so they can say their healthcare plan doesn't add to the deficit," Senate Minority Leader Mitch McConnell (R-Ky.) said Monday. "It's a gimmick, and a transparent one at that."

The House healthcare bills included the fix, which explains in part its $1.042-trillion price tag over 10 years. The bill that passed last week in the Senate Finance Committee instead assumed that the rate cuts would take place in future years, resulting in its $829-billion tab.

Republicans blasted the finance committee bill as disingenuous, and House Majority Leader Steny H. Hoyer (D-Md.) called it a "facade."

To solve the doctor payment issue separately would put the House and Senate healthcare bills on a fairly even footing when it comes to estimating their effect on the deficit.

But the Stabenow approach would simply halt the cuts without any way to offset the cost. Passing such a bill would require 60 votes, which is considered unlikely. Some Democrats, such as budget committee Chairman Kent Conrad (D-N.D.), have said they would withhold their support until Stabenow and Reid can show how they'll pay for it.

On Monday, Reid was negotiating with Senate Republicans to allow some amendments to the Medicare payment bill before bringing it to a vote on the floor. Republicans plan to offer amendments that would help pay for the bill, but could result in another short-term, rather than permanent, fix.

The AMA, which has spent millions of dollars lobbying to eliminate or at least postpone the cuts, has argued that they would force many doctors out of business and would cause others to turn away Medicare patients.

"It's something we've been working for the last seven years," said Dr. J. James Rohack, who heads the AMA. "And Congress has only put temporary Band-Aids on it."

from the Wall Street Journal, 2009-Oct-21:

The Doctor Fix Is In
Adding lots of 'dimes' to the deficit.

President Obama has made serial promises that he will not sign a health-care bill that "adds one dime to our deficits, either now or in the future, period." This was never plausible, but now we can begin to understand what he meant: Democrats plan to make ObamaCare "deficit-neutral" by moving nearly a quarter-trillion dollars off the books, in the fiscal deception of the century.

Later this week, or maybe next, Senate Democrats plan to vote on a stand-alone bill that strips a formula that automatically cuts Medicare physician payments out of "comprehensive" health reform. Rather than include the pricey $247 billion plan known on Capitol Hill as the "doc fix" as part of ObamaCare, they'll instead make this a separate contribution to the deficit, without compensating tax increases or spending cuts. Majority Leader Harry Reid explained at a press conference last week that "All we're doing is wiping the slate clean by adjusting the baseline to what is current policy. This is not new policy."

Wiping the slate is right.

It's true that Congress likes to pretend that the "sustainable growth rate," or SGR, is real. Created in 1997, the SGR slashes Medicare reimbursements if costs rise too steeply, as they always do. In January, doctors fees are scheduled to fall by 21.5%, and 40% over the next five years. That would force many doctors to stop seeing Medicare patients, so Congress intervenes every year and temporarily overrides the cuts.

The American Medical Association's asking price for supporting ObamaCare is scrapping the SGR. House Democrats did just that, but it pushed the total cost of their bill above $1 trillion, a political red line. The Senate Finance Committee chose the subterfuge of fixing the problem for only one year, which is how Chairman Max Baucus could claim he had done the miracle-work of designing an entitlement that reduces the deficit over 10 years. The AMA wasn't pacified.

So now Democrats are simply going to "untether" this spending on doctors from ObamaCare, hiding even more of its true costs. At a meeting on the Hill last week, Mr. Reid and White House Chief of Staff Rahm Emanuel made the quid pro quo explicit, telling the AMA and about a dozen specialty societies that in return for this dispensation they expect them to back ObamaCare, no questions asked.

It turns out the AMA is a cheap date. President J. James Rohack now looks ready to embrace whatever else Democrats offer up, even though the new bill only delays the SGR cuts for 10 years instead of doing away with the formula permanently. Never mind that the AMA's other legislative priority—tort reform—is dead on arrival. ObamaCare is stocked with other provisions that punish doctors, such as a Medicare commission tasked with cutting spending but barred from raising the eligibility age or reducing benefits. In practice, this means it will only be allowed to crank down Medicare's price controls on providers.

Like other industry lobbies, Mr. Rohack seems prepared to trade away his members for a sack of magic beans. We agree that the SGR is a farce that nonetheless has very damaging effects on physician practices, but the least the AMA can do is use its political leverage for something more lasting than a 10-year promise that is bound to be revoked when ObamaCare's costs run off the rails.

The press corps will mostly ignore all of this because it is complicated and boring policy, as opposed to the epic drama of Anita Dunn vs. Glenn Beck. This doctor maneuver is such a cleverly dishonest solution to their many contradictory promises that we're surprised Democrats didn't think of it sooner.

from the Wall Street Journal, 2009-Oct-19, by William Mcgurn:

What Singapore Can Teach the White House
Its health care is first class, cheap and market-driven.

Singapore

Critics of this island-nation often have fun referring to it as the "nanny state" for its laws against spitting, littering, or leaving behind an unflushed loo.

When it comes to health care, however, Uncle Sam has better claim to the nanny title. From our federal price "negotiations" and state regulations to discrimination in the tax code, government distortions prop up a system that puts key health-care decisions in the hands of everyone but the patient. Each new government intrusion, moreover, begets only higher costs—and a call for more intervention to fix the problem.

In Singapore, by contrast, they already have universal coverage. They also have world-class quality care at world-competitive prices. And in a week when White House chief of staff Rahm Emanuel is meeting behind closed doors with Senate Majority Leader Harry Reid, Singapore's example might have something to teach them about the kind of reform Americans really need.

"When I'm asked to describe the differences between the U.S. and Singapore systems, my one-word answer is 'complexity,'" says Dr. Jason Yap, director of marketing for Raffles Hospital, a leading private care facility in downtown Singapore. "There are so many parties in the American system that do not really contribute to care."

Dr. Yap is referring to the higher costs that come from an American system that depends on regulation and oversight to accomplish what Singapore tries to do with competition and choice. At the Raffles lounge for international patients, he shows me an example of the latter. It's a one-page, easy-to-read list of fees.

At the high end of accommodation, a patient can choose the Raffles/Victory suite for about $1,438 per night. That price includes a 24-hour private nurse, a refrigerator stocked with drinks, and an adjoining living room to entertain. At the other end of the scale, a bed in a six-person room goes for just $99.

As Dr. Yap points out, the actual care is the same whether a patient decides to stay in a deluxe suite or a dormitory-style room. But the choice is the patient's; the financial incentives encourage the patient to think about those choices; and the low-priced options help keep the overall costs down.

This is no accident. Like ours, Singapore's system is a mix of public and private care and financing. Unlike ours, Singapore's system is anchored, as the Ministry of Health puts it, "on the twin philosophies of individual responsibility and affordable health care for all."

"Individual responsibility" is not just a buzzword. All but the abjectly poor have to pay for some of their care, another downward pressure on prices. Perhaps most important, almost all working Singaporeans are required to put money in a medical savings account that they use for out of pocket expenses. It's their money, and they control it. As a result, they are careful about spending it.

"In Singapore almost everyone has to pay something for their care," says Dr. Yap. "When it's your money, you really ask yourself: Do I really need this?"

It seems to be working. According to a Raffles Hospital official, a knee replacement surgery runs between U.S. $12,000 and $14,000. Spinal fusion runs between $10,500 and $14,000, and a heart bypass (coronary artery bypass graft) from $23,000 to $26,500. Conservatively speaking, these prices are less than a third of what the same procedure would cost in the U.S.—that is, when you can even get the price.

As any American who has ever tried to make sense of a hospital bill or haggled with his insurance company over a payment can tell you, even for those who have decent coverage our system can be a bureaucratic nightmare. Singapore's system isn't perfect. It does suggest, however, that the Average Joe stands more to gain from a system where hospitals and doctors compete for patients, where patients have different price options for their hospital stays and appointments, and where they pay for some of it out of pocket.

Yes, a city-state with three million citizens has some advantages over a nation of more than 300 million people in 50 states. Yes, health care in Singapore is hardly the laissez-faire ideal. Still, there's intervention and there's intervention: What makes Singapore's health care work is that it is designed to swim with the market and not against it.

In macro terms, that means Singaporeans spend only about 4% of GDP on health care—against 17% for the United States. At the same time, Singapore scores better than the U.S. on life expectancy, infant mortality, and other key international measures.

In his address to Congress last month, President Obama complained that "we spend one and a half times more per person on health care than any other country, but we aren't any healthier for it." That's a good point. And the lessons Singapore has to offer suggests that what Americans need most in Washington today are fewer closed-door meetings and more open minds.

from the Wall Street Journal, 2009-Oct-13:

At the Table, but on the Menu
The health-care industry learns the price of appeasing Congress.

The Senate Finance Committee holds its big health-care vote today, but the bigger story is that the health-care industry may finally be coming to its senses. After months of serving as Rose Garden props, insurers, doctors and hospitals are discovering they've been taken for a ride on ObamaCare. Too bad it may be too late to stop the train.

The best scales-from-the-eyes moment comes courtesy of America's Health Insurance Plans, the industry lobby. Yesterday AHIP released an important PricewaterhouseCoopers study showing that the Finance bill would on average add some $1,700 a year to the cost of family coverage in 2013. A decade from now, family premiums would cost $4,000 more than if Congress did nothing, and singles would pay about $1,500 more. Hardest hit would be the individual market, with rates rising by 49%, but even the largest employers would see increases between 9% and 11%.

The study's findings won't shock anyone who's read the bill's details, but its provenance might: In a deal cut earlier this year, the insurance industry acquiesced to rules requiring them to take all comers, regardless of health status or history, and also charge them more or less the same premiums. In return, Congress would subsidize individuals to buy their products and provide new customers by requiring everyone to buy insurance or pay a tax penalty.

A spokesman for Finance Chairman Max Baucus dismissed the AHIP report as a "hatchet job . . . bought and paid for by the same health insurance companies that have been gouging too many consumers for too long as they stand in the way of reform yet again." Talk about ungrateful. If insurers really had been standing in the way, —or even willing to educate the public about an agenda that will raise consumer prices—ObamaCare might not now be rushing to passage.

The irony is that AHIP is now arguing for a more left-wing bill, claiming the Baucus plan isn't "universal" enough. The Congressional Budget Office thinks it will cover only 91% of the population, in part because Democrats reduced the "individual mandate" tax on people who don't buy insurance.

Now they'll pay only $750 after eight years of noncompliance, from an original maximum of $3,800 in the first year, because taxing people looked bad politically. But without this brute tax force, healthier people will opt out of expensive insurance pools and only buy coverage when they need it. It doesn't take a consulting firm to prove that this is an adverse-selection disaster waiting to happen.

The AHIP study also illuminates the other taxes and regulations that will increase insurance costs and weren't part of the bargain. The 40% excise tax on "Cadillac" health plans—above $8,000 for individuals and $21,000 for families—is structured so that it will ultimately hit the Chevy plans too, much like the alternative minimum tax. Reductions in Medicare payments mean that doctors and hospitals will be forced to raise prices in the private market, which will cause a 1.2% increase in the underlying health costs that drive premiums.

Speaking of providers, the hospitals agreed to $155 billion in Medicare and Medicaid cutbacks, on the theory that they, like the insurers, would also make the revenue up on volume. But since the coverage mandate has become swiss cheese, both the Federation of American Hospitals and the American Hospital Association are also growing more combative behind the scenes.

The American Medical Association may also be having second thoughts. The doctors lobby had endorsed the House health bill because it eliminated the "sustainable growth rate," or SGR, a formula that automatically reduces Medicare payments to doctors when costs run too high. The SGR has been overturned every year since 2003, however, because Medicare price controls are already stringent. Yet eliminating the SGR will cost some $245 billion, and Mr. Baucus wanted to preserve the fiction that his new entitlement will reduce the deficit. So to game the 10-year budget math, he patches the problem only for a single year.

The AMA didn't even play hard to get, but apparently it didn't realize that Democrats want to keep this formula in place. Pretending that doctors will eat a 25%-plus pay cut makes Medicare's fiscal condition seem less dire, and the annual fire drill on the "doctors fix" ensures that campaign contributions keep coming. And here we thought you had to be smart to get into med school.

All of these lobbies should have known better. The insurers have been especially foolish, given that ObamaCare has all along been about converting them into public utilities. Washington will design benefits and set prices—and now there's even talk in the House of a windfall profits tax. The CEOs of Aetna, WellPoint, UnitedHealthcare and the rest deserve to be sued for destroying shareholder value through political malpractice. If nothing else, this exercise provides an object lesson in the wisdom of the Washington adage that "if you're not at the table, you're on the menu." The industry is "at the table"—as the main course.

The tragedy is that the biggest losers will be average Americans, who thanks to this political collusion are likely to end up with insurance that is more expensive and less flexible than even the status quo.

from Politics Daily, 2009-Oct-8, by Wendy Button:

Health Care Speechwriter for Edwards, Obama & Clinton Without Insurance Now

For the first time in my life, I am without health insurance and it is a terrible feeling.

In the past, I paid attention to the health care debate as a speechwriter who prepared speeches, talking points, op-eds, and debate prep material on the topic at different times for John Edwards, Barack Obama, Hillary Clinton and others. Now, I'm paying attention because I'm a citizen up the creek without a paddle.

Throughout my life, I have been very lucky because my insurance has always been there whenever I had a crisis. When my 10-speed hit a patch of leftover winter sand, and I went flying into a telephone pole, it covered the x-rays and stitches and concussion diagnosis. When a half a ton of sheet rock fell on me, my insurance paid for the cast on my foot. When my depression kicked in and I was hospitalized and painting ceramic pieces in art therapy to boost my self-esteem (sheesh), it made sure that when I got home my medical bills didn't make me reach for a razor. And when there were growths in my uterus, it covered that medical procedure and every regular check-up, lab test, broken bone, sports injury, and antibiotic prescription in between.

Since I care more about my country than my personal pride, here's how I lost my insurance: I moved. That's right, I moved from Washington, D.C., back to Massachusetts, a state with universal health care.

In D.C., I had a policy with a national company, an HMO, and surprisingly I was very happy with it. I had a fantastic primary care doctor at Georgetown University Hospital. As a self-employed writer, my premium was $225 a month, plus $10 for a dental discount.

In Massachusetts, the cost for a similar plan is around $550, give or take a few dollars. My risk factors haven't changed. I didn't stop writing and become a stunt double. I don't smoke. I drink a little and every once in a while a little more than I should. I have a Newfoundland dog. I am only 41. There has been no change in the way I live my life except my zip code -- to a state with universal health care.

Massachusetts has enacted many of the necessary reforms being talked about in Washington. There is a mandate for all residents to get insurance, a law to prevent insurance companies from denying coverage because of a pre-existing condition, an automatic enrollment requirement, and insurance companies are no longer allowed to cap coverage or drop people when they get sick because they forgot to include a sprained ankle back in 1989 on their application.

Even if the economy was strong and I was working more, I still couldn't afford my premium. I am not alone; I've got 46 million friends in a similar situation. We wake up every day worried that a bad cough, an accident while walking the dog, or that dreaded pain on the right side of the abdomen will send us into complete financial ruin.

As luck would have it, I didn't schedule a physical before I left D.C. I thought I could get that taken care of when I moved -- after all they had reforms, automatic enrollment, and universal coverage in Massachusetts, all the things I'd written about for politicians. Health care would be affordable. It didn't dawn on me that it would just be affordable for other people.

Now, sharing my experience doesn't make me an expert in health care policy anymore more than my knowledge that Kajagoogoo sings "Too Shy" makes me an expert in music. What my story does is serve as a cautious reminder that we need to get this right, not right away. A rushed bill will have consequences. Reforms will not be cheap and some people may be priced out.

How could all of these weeks and months go by and no one is examining and talking about what has worked and what hasn't worked in Massachusetts?

While the state has the lowest rate of uninsured, a report by the Commonwealth Fund states that Massachusetts has the highest premiums in the country. The state's budget is a mess and lawmakers had to make deep cuts in services and increase the sales tax to close gaps. The number of people needing assistance has at times overwhelmed the state. The mandate means that some people who can't afford insurance are now being slapped with a fine they also can't afford. There is no "public option" in the way the president describes it, no inter-state competition, no pool for small businesses and self-employed individuals like me to buy into groups that negotiate cheaper rates. So far I haven't found any "death panels," but if I get sick and need a hospital, I sure hope I can find one and a feisty granny to pull my plug.

What makes this a double blow is that my experience contradicts so much of what I wrote for political leaders over the last decade. That's a terrible feeling, too. I typed line after line that said everything Massachusetts did would make health insurance more affordable. If I had a dollar for every time I typed, "universal coverage will lower premiums," I could pay for my own health care at Massachusetts's rates.

So far, the most informed and civil discussion I've had about this issue has been with some of the sales representatives with the top providers in Massachusetts as I searched for an affordable plan. Each person I talked to was kind and considerate and truthful. One man said that he prepares everyone for the "sticker-shock," whether they are a family of four or an individual.

Right now, the truth is if I could buy my health plan from D.C., then I would. If I could buy into a public option, co-op, or trigger plan, whatever they want to call it, then I would. If I qualified for the new exchange, then I'd get into that, too, but four years is a long time to go without a physical, pap smear, and to have this mole checked. If someone were to put Medicare for All back on the table, then I would be fine with that too. Honestly, it's starting to make the most fiscal sense: $450 billion we pay to insurance companies could be redirected to Medicare, $350 billion in savings in paper work, and of course that $500 billion in savings for "waste, fraud, and abuse."

If this country is about to gamble a trillion dollars plus -- and it will be a big plus no matter what the Congressional Budget Office projection is -- then why not use a system that already exists? [Ms. Button still doesn't get it at all. -AMPP Ed.] My experience in politics has been any time a politician says $500 billion will come from "waste, fraud, and abuse" that's a fancy way of saying, "Hold on to your wallet; we'll pay for it later."

We have to be careful about how we spend this trillion dollars. Right now, we are $1.4 trillion in the hole and the Senate has been asked to raise the country's debt ceiling to $12 trillion. We are fighting two wars and may increase troop levels in one. We have 250 new Iraq and Afghanistan veterans seeking care from VA facilities every day, and unemployment is headed north, past 10 percent. Has anyone else thought, "Hey wait a minute? Why are we proposing to spend so much on a mess of a plan?"

Why can't Washington look north to Massachusetts? What's the lesson for the nation in its successes and failures: universal coverage first or cost reductions? If health care is a right, then why aren't we starting over with Medicare for All? If health care is a responsibility, then why aren't we changing the system to address that? There is a big red flag planted in the middle of this state and it looks like everyone's just pledging allegiance to it rather understanding the warning in its wave.

For now, I'm going to have to get used to this terrible feeling. I'll eat right. I'll drive 55. I'll keep my dog on a tight heel and pet her to keep my blood pressure down. And I'll hope the economy turns around soon and $6,600 or so a year for health insurance doesn't seem so unaffordable.

I want health care reform. I need it, but I want Washington to start over. It doesn't make me "un-American" or "astroturf" or "racist." I'm a critic because what Washington is talking about doing has made health insurance unaffordable in Massachusetts.

If Washington won't go for a simple clean move to a system like Medicare for All, then it needs to do one reform, one new law, at a time -- not with a 1,000 page bill where strange things can hide. Line up the 80 percent of things we agree on and vote one at a time to change pre-existing conditions, cut that $500 billion in Medicare's "waste, fraud, and abuse," create meaningful lawsuit reform, and add some real competition to insurance companies whether it's a public option or a pilot exchange program. Show the country that this is possible with lower premiums and more efficiency and then go for the tough stuff. Critics like me want something done right because we actually are up the creek without a paddle.

If Congress and the president want to fix health care, then it is time to start over. They need to look at what's worked and what has failed in Massachusetts. They are going to have to actually take former Gov. Sarah Palin's advice and "look north to the future." Who knew that would ever make sense? But if we continue on this current path without looking, it's easy to diagnose what's coming to the country when a health care bill passes.

A mess.

Wendy Button has written for John Edwards, Hillary Clinton, John Kerry, Barack Obama, and Mayor Tom Menino of Boston as well as other national and international leaders, and is working on a book.

from the Boston Globe, 2009-Oct-11, by Liz Kowalczyk:

State plan may place limits on patients' hospital options

The state's ambitious plan to shake up how providers are paid could have a hidden price for patients: Controlling Massachusetts' soaring medical costs, many health care leaders believe, may require residents to give up their nearly unlimited freedom to go to any hospital and specialist they want.

Efforts to keep patients in a defined provider network, or direct them to lower-cost hospitals could be unpopular, especially in a state where more than 40 percent of hospital care is provided in expensive academic medical centers and where many insurance policies allow patients access to large numbers of providers.

But a growing number of hospital officials and physician lead ers warn that the new payment system proposed by a state commission would not work without restrictions on where patients receive care - an issue some providers say the commission and the Patrick administration have glossed over.

“You can't reap these savings without limiting patients' choices in some way,'' said Paul Levy, chief executive of Beth Israel Deaconess Medical Center. “It's a huge issue, it's huge.'' Dr. James Mongan, president of Partners HealthCare, a Beth Israel Deaconess competitor, agreed that it wouldn't “work without some restriction on choice.''

A state commission recommended in July that insurers largely scrap the current fee-for-service system - in which insurers pay doctors, hospitals, and other providers a negotiated fee for each procedure and visit - and instead pay providers a per-patient annual fee to cover all of the patient's medical care.

This new system of “global payments'' would discourage overuse of expensive medical services, force providers to live within a budget, and improve coordination of care for patients, supporters argue.

There is little doubt that the state's current system of broad choice and sometimes uncoordinated care has helped push Massachusetts health care costs above the national average. It can lead to unnecessary duplication of medical tests, when patients see multiple providers, each often unaware of what the others have done. And thousands of residents get knee replacement surgery, have babies at teaching hospitals, or other care, when often a less-expensive hospital would be more economical and provide good-quality care.

In 1990, 36 percent of Massachusetts hospital patients were treated at teaching hospitals, but by 2007 the percentage climbed to 44 percent - more than twice the national average of 19 percent. The percentage of Massachusetts births at teaching hospitals also has increased. Some of this expanded use of teaching hospitals is understandable, because for many Boston residents academic medical centers in their neighborhoods are their community hospitals. In other cases, residents bypass less-expensive community hospitals, but this is a freedom many patients desire.

The Massachusetts proposal would involve a more ambitious restructuring of health care than any of the cost-cutting ideas being discussed in Washington. Under a global payment system, doctors, hospitals, nursing homes, and other providers would form large networks, called accountable care organizations, that would provide most of the care for individual patients and divvy up the payments. Doctors would try to coordinate patients' care within these networks, which would share electronic medical records and treatment plans. And to manage costs, they would try to direct patients to the hospital within the network that could provide good-quality care at the lowest cost, while generally using teaching hospitals for advanced care.

The release of the report sparked a lobbying campaign by Massachusetts health care executives, who are urging Governor Deval Patrick's administration and state legislators to move cautiously because they fear a new payment system could bankrupt some providers and compromise patient care. Many changes recommended by the commission would have to be approved by the Legislature before being put in place.

In its report, the commission, which includes high-ranking Patrick administration officials and legislators, said patients wouldn't necessarily be restricted to providers within their primary care doctor's accountable care organization. And, during a hearing at the State House Thursday, Dr. JudyAnn Bigby, secretary of Health and Human Services, said “the people benefiting from the new system should not even notice it.''

Writing in the New England Journal of Medicine last month, staff writer Dr. Robert Steinbrook said the state commission failed to address the choice issue head-on. Global payments would save money only if networks “limited the volume of services, and denied certain requests from patients and providers,'' among other measures, he wrote. “Since patient choice is such a sensitive issue, the commission waffled.''

But Sarah Iselin, head of the state Division of Health Care Finance and Policy and cochair of the payment commission, said the panel understood the importance of addressing the effect of its recommendations on patient choice, but “felt these issues could be figured out'' later by a board that would be created to oversee the transition to a new payment system.

The commission recommended that all residents choose a primary care doctor, because many patients will listen to their doctor's recommendations about where to get care, she said. Under global payments, those doctors would have an incentive to refer patients within their organization. And, she said, educating patients about low-cost, high-quality providers also will play a major role, and may preclude the need for forced restrictions on choice. “Over time, patients may very well be inclined to go there all by themselves,'' Iselin said.

Even if patients continue to seek basic care at teaching hospitals and go outside their doctors' networks, she said, global payments have the potential to save money in other ways. The state estimates, for example, that reducing preventable hospital stays and emergency room visits would save $1 billion a year.

But Lynn Nicholas, president of the Massachusetts Hospital Association, pointed out that even saving money in these areas requires more coordinated care. One way to address the issue and still give people choices, she said, is for insurers to offer plans that charge higher premiums for unlimited access to providers, and lower premiums for members willing to stay within a defined network.

Many insurers offer these types of limited networks now - premiums are about 15 percent lower than in plans with unlimited access - but they haven't been popular among employers and employees.

Nicholas said that may be because the financial incentives to join plans with limited networks aren't strong enough. She wants providers, insurers, and employers to work together to develop benefit programs that will encourage patients to stay within limited networks.

Another way to cut the cost of academic medical centers is to reduce the prices they are paid. In an analysis done for the state this summer, the RAND Corporation estimated Massachusetts could save $1.3 billion to as much as $18 billion over 10 years if teaching hospital payments for certain conditions were set at average community hospital rates, depending on how many conditions are included.

It's unclear whether the Legislature or the board that would oversee the new payment system would embrace such a controversial change. But the payment commission recommended that the board address in some way the issue of hospitals being paid vastly different amounts for similar care.

During her testimony, Bigby, the state Health and Human Services secretary, said that in the transition to global payments, “we must be careful . . . not to enshrine the inequities that exist in the current system.''

from the Wall Street Journal, 2009-Oct-8, by Kimberley A. Strassel:

States of Personal Privilege
Senators aren't counting on reform savings when it comes to their constituents.

How good is Sen. Max Baucus's health reform bill? So good that Democrats have made sure some of the most costly provisions don't apply to their own states.

The Senate Finance Committee is gearing up for a final vote next week, and Chairman Baucus now appears to have the Democratic votes to pass his bill. Getting this far has of course meant cutting deals, and those deals, it turns out, are illuminating. The senators are all for imposing "reform" on the nation, so long as it doesn't disadvantage their constituents.

A central feature of the Baucus bill is the vast expansion of state Medicaid programs. This is necessary, we are told, to cover more of the nation's uninsured. The provision has angered governors, since the federal government will cover only part of the expansion and stick fiscally strapped states with an additional $37 billion in costs. The "states, with our financial challenges right now, are not in a position to accept additional Medicaid responsibilities," griped Democratic Ohio Gov. Ted Strickland.

Poor Mr. Strickland. If only he lived in . . . Nevada! Senate Majority Leader Harry Reid, who is worried about losing his seat next year, worked out a deal by which the federal government will pay all of his home state's additional Medicaid expenses for the next five years. Under the majority leader's very special formula, only three other states—Oregon, Rhode Island and Michigan—qualify for this perk, on the grounds, as Mr. Reid put it recently on the Senate floor, that they "are suffering more than most."

Tell that to Mr. Strickland, who is still trying to figure out how to close an $850 million budget hole, in a state with near 11% unemployment. And tell it to Republican Sen. Lamar Alexander, who quipped: "I wonder how citizens in Wyoming, in California and Florida and other states will feel if they pay more taxes so that Nevadans can pay less taxes."

To pay the bill for his version of ObamaCare, Mr. Baucus's legislation would tax high-value insurance plans—a 40% tax on plans that cost more than $21,000 a year. Democrats argue it is reform to make those who can afford "luxury" health care chip in for those who can't afford any at all.

That is, unless you live in a state such as New York. That state, along with some others, has many high-value plans—in part because it boasts a lot of union members with "Cadillac" plans, in part because the state has imposed so many insurance regulations that even skimpy plans are expensive. Sen. Chuck Schumer didn't want a lot of angry overtaxed New Yorkers on his hands, so he and other similarly situated Democrats carved out a deal by which the threshold for this tax will be higher in their states. If you live in Kentucky, you get taxed at $21,000. If you live in Massachusetts you don't get taxed until $25,000. This carve-out is at least more sweeping, applying to 17 (largely blue) states, though that's cold comfort if you live in Louisville.

Mr. Baucus will also pay for his bill by socking it to pharmaceutical companies, on the principle that drug companies are filthy rich and should have to contribute to health care. The view is a bit different in New Jersey. The state's Web site boasts it is the "global epicenter" of the drug industry, where "15 of the world's 20 largest pharmaceutical companies have major facilities." And Sen. Bob Menendez, of the Garden State, seems concerned that his home-state employers are going to struggle to both pay their federal liabilities and to continue to grow and innovate. Thus Mr. Menendez's quiet deal for a $1 billion tax credit for companies investing in drug R&D.

The Baucus bill, we are assured by many Dems, will successfully "bend down" the health-care cost curve. Michigan Sen. Debbie Stabenow isn't counting on it when it comes to her constituents. She and Massachusetts Sen. John Kerry included $5 billion in the bill for a reinsurance program designed to defray the medical costs of union members.

"This will help our employers, whether it's the auto industry or whether it's other industries, be able to lower their costs for early retirees," said Ms. Stabenow. She is apparently unaware that this is what the broader bill is supposed to do, even without $5 billion in union slush money.

So, health-care "reform" is good, smart and necessary, so long as it isn't fully applied to the states of the senators who are pushing it. The Democrats' growing problem is that somebody is ultimately going to have to pay, and Mr. Reid's bad example has given every one the same idea. "If Colorado has a fair claim on being treated the same way Nevada has been, of course we're going to ask to have that kind of treatment," promised Sen. Mark Udall, upon news of the Reid deal.

Most senators are saving up their special state demands for when the bill hits the Senate floor. At that point, we'll get an even better idea of how much health-care change Democrats truly believe in.

from the Wall Street Journal, 2009-Oct-9, by Wendy Williams:

Paying the Health Tax in Massachusetts
Be warned: Even people with good insurance will risk fines if mandatory insurance becomes the national law.

Cape Cod, Mass.

My husband retired from IBM about a decade ago, and as we aren't old enough for Medicare we still buy our health insurance through the company. But IBM, with its typical courtesy, informed us recently that we will be fined by the state.

Why? Because Massachusetts requires every resident to have health insurance, and this year, without informing us directly, the state had changed the rules in a way that made our bare-bones policy no longer acceptable. Unless we ponied up for a pricier policy we neither need nor want—or enrolled in a government-sponsored insurance plan—we would have to pay $1,000 each year to the state.

My husband's response was muted; I was shaking mad. We hadn't imposed our health-care costs on anyone else, yet we were being fined ("taxed" was the word the letter used).

We've spent much of our lives putting away what money we could for retirement. We always intended to be self-sufficient. We've paid off the mortgage on our home, don't carry credit-card debt, and have savings in case of an emergency. We also have a regular monthly income of about $3,000, which includes an IBM pension. My husband, 61, earns a little money on the side, sometimes working as an electronics consultant on renewable energy projects. I'm 58 and make some money writing science books. We are not wealthy, but we aren't a risk of becoming a burden on society either. How did we become outlaws?

The turning point was three years ago, when then-Republican Gov. Mitt Romney pushed through the state legislature a health-care plan that he promised would provide universal coverage while lifting from the middle-class the burden of having to pay for those who do not have insurance. His argument was that the uninsured drove up the cost of health care for everyone by seeking care at emergency rooms and then skipping out on their medical bills. Hospitals make up for those unpaid bills by charging everyone else more than they otherwise would.

The central plank of the Romney plan was a mandate that required everyone to buy health insurance or pay a fine for posing a risk to society by walking around without coverage. There would be subsidies for those who couldn't afford insurance, and residents would be required to buy a minimum amount of health insurance, on the grounds that they might buy a policy that doesn't cover the cost of their care and end up skipping out on their medical bills. "We insist that everybody who drives a car has insurance, and cars are a lot less expensive than people," Mr. Romney told the Boston Globe in 2006.

Mr. Romney and Sen. Ted Kennedy publicly promised that the middle class—that is, people like us—would not be taxed and that our health-care costs would actually decrease if the plan became law.

My husband and I weren't convinced. It all seemed inane, but we are neither politically or socially conservative and figured the plan wouldn't affect us much. Besides, who could be against a plan that covers more people for less money?

For the first two years of the mandate, our IBM health insurance was seen as acceptable in the eyes of the state. This year the rules changed. The state requires that health plans cap out-of-pocket expenses for individuals (not including monthly premiums) at $2,000 a year. Our plan's cap is $2,500.

Ten years ago, we had excellent coverage through a more gold-plated plan. But we found that it was no longer worth paying the premiums and scaled back to a more modest policy. Today, we pay about $300 a month for catastrophic care. If we went with the next step up in plans offered to us by IBM, our monthly premium would increase to $800. We simply don't need to pay that kind of money for the amount of health care we actually consume.

Nonetheless, we now owe the state an extra $1,000. Ironically, that's about the extra amount we would pay out-of-pocket under our current plan if both of us actually fell ill in the same year.

We could choose a state-sponsored plan. It would mean paying more than what we pay now, but less than what IBM's next step up would cost. But we don't want to.

IBM seems like a rock of stability compared to the state of Massachusetts. It's apparent that state health-care policies can change at the whim of politicians in Boston, and we might not be able to adjust to the new rules. The way we figure it, if we sign up for a state-subsidized plan we will be at the mercy of the state.

So we are sticking with our plan and paying the tax. But what bothers me most is that a similar health-care mandate is being proposed in Washington, and some of the same promises that were made here are being made again—such as that the mandate will never hit middle-class folks with a new tax. When asked about the mandate, Maine Republican Sen. Olympia Snowe said recently, according to the New York Times, "It surprises me that we would have these high-level penalties on average Americans."

Well, I don't find it surprising. The mandate in Massachusetts was sold as something that wouldn't penalize people like my husband and me. But those political promises were only good for as long as it took to get the mandate enacted into law.

Mrs. Williams is co-author of "Cape Wind: Money, Celebrity, Class, Politics and the Battle for Our Energy Future" (PublicAffairs, 2007).

from the Wall Street Journal's Political Diary, 2009-Oct-5, by Holman W. Jenkins Jr.:

Welcome to the Future in Connecticut

"Slippery slope" arguments always sound like scare talk -- until they come true.

Kenneth Feinberg, the Obama-appointed "pay czar" for banks and auto companies on the taxpayer dole, recently met with senior executives of 20 firms, none of which had received a taxpayer bailout, to assure them that Team Obama didn't intend to expand its remit to regulate their pay too. A ridiculous concern? Consider a case in Connecticut that shows that when government gets a taste for reaching inside businesses to alter decisions that politicians don't like, officials are likely to keep pushing past all previously known limits.

As today's Hartford Courant reports, utility regulators in the state last month "did something they had never tried before, something that lawyers of long experience said they have rarely, if ever, seen any government agency do. Regulators forbade private companies from laying off some of their own workers." Two companies, Connecticut Natural Gas and Southern Connecticut Gas, were banned temporarily from proceeding with 67 planned layoffs, on grounds that the cuts might affect the "reliability" of gas deliveries. Though labor lawyers acknowledged such a step was unprecedented, they roundly dismissed the idea that, even under an Obama administration dominated by union interests, such interventions would become widespread. "The corporate community would go ballistic at the mere proposal of widespread use of a mechanism like this to block layoffs," Cornell University labor expert Lance Compa told the Courant.

Of course, it was just a few weeks ago that Connecticut Attorney General Richard Blumenthal asked the same state regulatory commission to block 75 job cuts by AT&T in the state. Mr. Blumenthal later joined with local labor leaders in holding a protest against the layoffs, though one might think an AG has no business hectoring companies about perfectly legal actions. Mr. Blumenthal's own assurances to the paper were hardly reassuring: "I am not predicting an avalanche of regulatory actions that ban layoffs. If it becomes more common, it will be only because the companies themselves fail to fulfill their public trust."

from the Wall Street Journal, 2009-Oct-4:

Clunkers in Practice
One of Washington's all-time dumb ideas.

Remember "cash for clunkers," the program that subsidized Americans to the tune of nearly $3 billion to buy a new car and destroy an old one? Transportation Secretary Ray LaHood declared in August that, "This is the one stimulus program that seems to be working better than just about any other program."

If that's true, heaven help the other programs. Last week U.S. automakers reported that new car sales for September, the first month since the clunker program expired, sank by 25% from a year earlier. Sales at GM and Chrysler fell by 45% and 42%, respectively. Ford was down about 5%. Some 700,000 cars were sold in the summer under the program as buyers received up to $4,500 to buy a new car they would probably have purchased anyway, so all the program seems to have done is steal those sales from the future. Exactly as critics predicted.

Cash for clunkers had two objectives: help the environment by increasing fuel efficiency, and boost car sales to help Detroit and the economy. It achieved neither. According to Hudson Institute economist Irwin Stelzer, at best "the reduction in gasoline consumption will cut our oil consumption by 0.2 percent per year, or less than a single day's gasoline use." Burton Abrams and George Parsons of the University of Delaware added up the total benefits from reduced gas consumption, environmental improvements and the benefit to car buyers and companies, minus the overall cost of cash for clunkers, and found a net cost of roughly $2,000 per vehicle. Rather than stimulating the economy, the program made the nation as a whole $1.4 billion poorer.

The basic fallacy of cash for clunkers is that you can somehow create wealth by destroying existing assets that are still productive, in this case cars that still work. Under the program, auto dealers were required to destroy the car engines of trade-ins with a sodium silicate solution, then smash them and send them to the junk yard. As the journalist Henry Hazlitt wrote in his classic, "Economics in One Lesson," you can't raise living standards by breaking windows so some people can get jobs repairing them.

In the category of all-time dumb ideas, cash for clunkers rivals the New Deal brainstorm to slaughter pigs to raise pork prices. The people who really belong in the junk yard are the wizards in Washington who peddled this economic malarkey.

from CBS 13 of Sacramento California, 2009-Oct-20, by Sam Shane:

On The Money: Big-Screen Ban?

California could become the first state to ban energy-hogging big screen TVs, but not without a fight. At stake is the future of your television, and a very important sector of the California economy.

"It's amazing, that's our 3D demonstration," says Leon Soohoo, Paradyme Sound & Vision.

Leon Soohoo used to be excited about the future of television, but now the picture is changing. California plans to impose new energy guidelines on TVs , and that makes retailers like Leon Soohoo wonder if he can stay in business.

"Our customers who read the reviews and really watch the latest gadgets will probably order it online, out of state retailers, and there is no way the State of California can stop that," says Soohoo.

The California Energy Commission wants all TV sets under 58 inches, to consume one-third energy in just two years time, and cut energy in half in four years.

"Your television consumes 10 percent of your home's residential utility bill. That's a lot. It's growing," says Adam Gottlieb, California Energy Commission.

Californians buy four million televisions every year. The Energy Commission says the new standards will cancel the need for a new power plant, and save the average consumer $30 per year per television over the life of the set.

And while some manufacturers endorse the new standards, the Consumer Electronics Association is fighting them ferociously arguing the regulations would ban 25 percent of televisions on the market today and that would be bad for California.

"It's also going to cost the California economy money in lost tax revenues. One estimate is as much as $50 million," says Jim Barry, Consumer Electronic Association.

Millions of dollars and more than 4,000 California jobs lost, according to the Consumer Electronics Association, if the regulations are adopted.

"These regulations are unnecessary and harmful for businesses in the State of California," says Soohoo.

But the Energy Commission is expected to approve the new standards in mid-November.

"At the time when we're trying to hold on to every single dollar, this is gonna put more money into consumer pockets rather than giving it to the utility company," says Gottlieb.

The California Energy Commission says the new regulations will save enough power to light up nearly one million single-family homes in California each year.

But critics say the new guidelines will harm the electronics industry and prevent manufacturers from developing new products that use less energy.

from NewScientist.com, 2009-Oct-15, by Jim Giles:

US steel-makers temper climate deal hopes

AMERICA's giant steel-makers could be about to torpedo an international agreement on climate change.

Following lobbying by heavy industries, the US Congress is considering imposing tariffs on imports from China and other developing nations. That could be a deal-breaker for poor nations at December's climate change talks in Copenhagen.

If Congress passes laws imposing a limit on US greenhouse gas emissions, energy-intensive sectors such as steel-making and cement manufacture would almost certainly face increased costs. Competitors in China and other developing nations not subject to similar restrictions - and China has said that it will not set itself an emissions target - might be able to produce steel more cheaply, and take business away from US firms.

That logic has found its way into two climate bills now before Congress. The first, passed by the House of Representatives in June, would effectively impose tariffs on goods from companies in countries that do not have emissions targets. The newly introduced bill in the Senate so far contains only vague language about the need for a "border measure", but senators from states with heavy industry will push for something similar.

That sets the stage for a showdown that could derail progress towards an agreement on climate change. In August, 10 pro-tariff senators, all of them Democrats, told President Barack Obama that it was "essential" that climate change legislation include some form of tariff. Without the support of most or all of these senators, the climate bill appears likely to collapse, and if that happens Obama will have little to offer in Copenhagen.

If the tariffs remain in the bill, even in a draft form, key players like China and India will be alienated before the talks start. "China would be very frustrated and angry if the final bill includes carbon tariffs," says Zhang Haibin of Peking University, an adviser to China's Ministry of Commerce.

There is still a way out of this bind, according to Jake Caldwell of the think tank Center for American Progress in Washington DC. Although China will not set itself emissions targets, it has said it will commit to reducing its carbon intensity - the amount of carbon emitted per unit of energy used or dollar of wealth created. If the goals are tough enough, Chinese industries would have to invest in cleaner technology, like their US counterparts. That might be enough to persuade the senators to soften their stance on tariffs.

from the Wall Street Journal, 2009-Oct-4:

The 'Absurd Results' Doctrine
Turning the carbon screws on businesses so they lobby Congress for cap and trade.

'In recent years, many Americans have had cause to wonder whether decisions made at EPA were guided by science and the law, or whether those principles had been trumped by politics," declared Lisa Jackson in San Francisco last week. The Environmental Protection Agency chief can't stop kicking the Bush Administration, but the irony is that the Obama EPA is far more "political" than the Bush team ever was.

How else to explain the coordinated release on Wednesday of the EPA's new rules that make carbon a dangerous pollutant and John Kerry's cap-and-trade bill? Ms. Jackson is issuing a political ultimatum to business, as well as to Midwestern and rural Democrats: Support the Kerry-Obama climate tax agenda—or we'll punish your utilities and consumers without your vote.

The EPA has now formally made an "endangerment finding" on CO2, which will impose the command-and-control regulations of the Clean Air Act across the entire economy. Because this law was never written to apply to carbon, the costs will far exceed those of a straight carbon tax or even cap and trade—though judging by the bills Democrats are stitching together, perhaps not by much. In any case, the point of this reckless "endangerment" is to force industry and politicians wary of raising taxes to concede, lest companies have to endure even worse economic and bureaucratic destruction from the EPA.

Ms. Jackson made a show of saying her new rules would only apply to some 10,000 facilities that emit more than 25,000 tons of carbon dioxide each year, as if that were a concession. These are the businesses—utilities, refineries, heavy manufacturers and so forth—that have the most to lose and are therefore most sensitive to political coercion.

The idea is to get Exelon and other utilities to lobby Congress to pass a cap-and-trade bill that gives them compensating emissions allowances that they can sell to offset the cost of the new regulations. White House green czar Carol Browner was explicit on the coercion point last week, telling a forum hosted by the Atlantic Monthly that the EPA move would "obviously encourage the business community to raise their voices in Congress." In Sicily and parts of New Jersey, they call that an offer you can't refuse.

Yet one not-so-minor legal problem is that the Clean Air Act's statutory language states unequivocally that the EPA must regulate any "major source" that emits more than 250 tons of a pollutant annually, not 25,000. The EPA's Ms. Jackson made up the higher number out of whole cloth because the lower legal threshold—which was intended to cover traditional pollutants, not ubiquitous carbon—would sweep up farms, restaurants, hospitals, schools, churches and other businesses. Sources that would be required to install pricey "best available control technology" would increase to 41,000 per year, up from 300 today, while those subject to the EPA's construction permitting would jump to 6.1 million from 14,000.

That's not our calculation. It comes from the EPA itself, which also calls it "an unprecedented increase" that would harm "an extraordinarily large number of sources." The agency goes on to predict years of delay and bureaucratic backlog that "would impede economic growth by precluding any type of source—whether it emits GHGs or not—from constructing or modifying for years after its business plan contemplates." We pointed this out earlier this year, only to have Ms. Jackson and the anticarbon lobby deny it.

Usually it takes an act of Congress to change an act of Congress, but Team Obama isn't about to let democratic—or even Democratic—consent interfere with its carbon extortion racket. To avoid the political firestorm of regulating the neighborhood coffee shop, the EPA is justifying its invented rule on the basis of what it calls the "absurd results" doctrine. That's not a bad moniker for this whole exercise.

The EPA admits that it is "departing from the literal application of statutory provisions." But it says the courts will accept its revision because literal application will produce results that are "so illogical or contrary to sensible policy as to be beyond anything that Congress could reasonably have intended."

Well, well. Shouldn't the same "absurd results" theory pertain to shoehorning carbon into rules that were written in the 1970s and whose primary drafter—Michigan Democrat John Dingell—says were never intended to apply? Just asking. Either way, this will be a feeble legal excuse when the greens sue to claim that the EPA's limits are inadequate, in order to punish whatever carbon-heavy business they're campaigning against that week.

Obviously President Obama is hellbent on punishing carbon use—no matter how costly or illogical. And of course, there's no politics involved, none at all.

from the Wall Street Journal, 2009-Nov-11, by Holman W. Jenkins, Jr.:

The Economic Uses of Al Gore

Last spring Tennessee Republican Congresswoman Marsha Blackburn asked Al Gore during a House hearing if his investments in green energy meant he would benefit personally from cap and trade.

"If you believe that the reason I have been working on this issue for 30 years is because of greed, you don't know me," Mr. Gore responded (and, yes, according to two reporters present, he sighed).

Mr. Gore is quite right that his arguments should be judged on their merits, not on his investments. He's wrong to think his investments are irrelevant, and, even more, that sincerity is dispositive of anything. Sincerity is no substitute for disinterestedness.

Here are a couple questions: When so much of his position and prestige are invested in a predicted climate crisis, is Mr. Gore likely to be open to contrary evidence? Is he likely to be particularly fastidious about whether proposed steps will actually have an effect on global warming if they also happen to benefit his investments?

Ms. Blackburn's challenge was in a sense late. Mr. Gore long ago jumped over to the side where salesmanship, by whatever means, was the trumping priority. As far back as 1989, he insisted there was "no dispute worthy of recognition" about the danger of manmade climate change. By now, he titularly heads a vast establishment with a stake in one side of the argument.

Notice, for instance, after a decade in which the earth appears to have stopped warming and even cooled, that global warming advocates have rushed to embrace a computer simulation that predicts this cooling (in retrospect, of course) and allows for indefinite future cooling, even while assuring that the world is destined to face disastrous warming anyway. Isn't this what forecasters of doom have done since time immemorial when their deadlines for doom haven't been met?

Mr. Gore's own predictions of a climate catastrophe have not lessened, but every time he opens his mouth, the costs of meeting the emergency become easier and easier to swallow. They aren't even costs anymore; as he says in his new book, they are "profits."

All policy salesmanship naturally defaults toward the proposition of huge benefits and negligible costs (i.e., free lunchism). Isn't that where Al Gore is today?

Mr. Gore notes that he has poured his own money into two climate action nonprofits, but, whatever his self-felt motives, aren't these nonprofits functionally propaganda arms (i.e., advertising) that benefit his for-profit investments?

The truth is, evidence of man's impact on climate remains maddeningly elusive, in part because man's impact on climate is so small as to be hard to disentangle from natural variability. This is not Mr. Gore's position, of course. If anything, however, the case for action has become less closed since he pronounced it closed in 1989, if only because of the huge sums and manpower poured into the subject to little avail.

In retrospect, a significant moment was the falling apart or debunking of two key attempts seemingly well-suited to clinch matters for a scientifically literate public. One, the famous hockey stick graph, which suggested the temperature rise of the past 100 years was unprecedentedly steep, was convincingly challenged. The other, a mining of the geological record to show past episodes of warming were sharply coupled with rising CO2 levels, fell victim to a closer look that revealed that past warmings had preceded rather than followed higher CO2 levels.

These episodes from a decade ago testified to one important thing: Even climate activists recognized a need for evidence from the real world. The endless invocation of computer models wasn't cutting it. Yet today the same circles are more dependent than ever on predictions made by models, whose forecasts lie far enough in the future that those who rely on them to make policy prescriptions are in no danger of being held accountable for their reliability.

For a while the media could patch over the scientific shortfall by reporting evidence of warming as if it were evidence of what causes warming. Inconveniently, however, just as temperature-measuring has become more standardized and disciplined and less reliant on flaky records from the past (massaged to the Nth degree), the warming trend seems to have faded from the recent record.

We could go on. But from our first column on this subject, we have been convinced that the scientific questions are interesting and irrelevant, since it was never in the cards that Western societies (or Brazil or India or China) would sacrifice economic growth for the uncertain benefits of fighting climate change. Unable to do anything meaningful about climate change, policy would therefore default to satisfying the demand of organized interests for climate pork.

Isn't that, however much he may be distracted by feelings of sincerity, exactly the economic function of Mr. Gore today?

from the Wall Street Journal, 2009-Oct-20, by Pete du Pont:

Time for Inaction on Global Warming
Congress should consider the costs before passing "cap and trade."

"Global" and "warming" are perhaps the two most important words used to justify the approaching governmental control of our economy. In reality, global warming is barely occurring: In the 30 years starting in 1977, warming amounted to 0.32 degree Fahrenheit per decade, and in the next hundred years it is estimated to be about half a degree per decade.

So global warming looks like neither the alarmists' serious threat, nor an immediate crisis that requires governmental control of America's economy to reduce it. Nevertheless the government solution to these increases--the Waxman-Markey bill, which passed the House earlier this year--is estimated to lower global temperatures only about 0.18 degree Fahrenheit in the next 90 years.

And now comes the new Boxer-Kerry Senate bill, which would require a 20% reduction in greenhouse-gas emissions by 2020.

As a practical matter, what would such a reduction mean to us and our economy? Steven Hayward of the American Enterprise Institute calculates that a 20% reduction would mean cutting America's greenhouse gas emissions to our 1977 levels, and that would radically change both the U.S. economy and our personal lives.

As Mr. Hayward notes, we had 220 million people in America then; today we have 305 million. In 1977 our economy was produced $7.2 trillion (in 2008 dollars); today it is twice as large, at $14.2 trillion. Back then we had 145 million vehicles on the road; today we have 251 million. America has substantially grown, and our energy needs have grown as well.

So what would we have to do get back to 1977 emission levels and meet the Boxer-Kerry requirement? First, car and truck miles travelled would have to be reduced by one-third (or fuel efficiency improved by one-third, hard to do in 10 years), which would seriously reduce travel and transportation, and likely force changes in automobile design that consumers would not like.

Next, the amount of coal burned to generate electricity would have to be cut in half. So we would close more than 200 of our coal-fired power plants, and as Mr. Hayward says that would reduce our electricity supply by some 800 million megawatts. To replace those millions of megawatts with non-hydro renewable power sources like wind, solar and geothermal power would be virtually impossible. We have about 130,000 megawatts generated by them now, and the growth rate of these power sources over the last five years suggests it would take 97 years to make up for the shutdown of 200 coal-fired plants.

Nevertheless, the Boxer-Kerry bill, at least in its draft form, is an improvement over Waxman-Markey. It is in favor of nuclear power--which, in Sen. John Kerry's words, "needs to be a core component of electricity generation if we are to meet our emission reduction targets"--though it does not mention the construction of the 70 to 100 nuclear plants we would need to add to the 104 we now have in order to reduce carbon dioxide emissions. It is also in favor of expanding offshore drilling and natural-gas exploration and production, something that Waxman-Markey does not support.

On the other hand, Boxer-Kerry would be as bad for our economy as Waxman-Markey in two respects. First, it too contains the protectionism of the Waxman "border adjustment program" to begin a new American policy of putting tariffs on goods imported from counties that do not adopt acceptable environmental standards, which surely would result in retaliation tariffs on our exported goods.

And the bill aims to achieve targeted emission declines through a similar cap-and-trade program involving carbon permits. This is said to cover only 2% of U.S. businesses, but it would drive up the cost of electricity, food and other goods for all households and businesses, and its 20% emission reduction is even larger than the 17% in that bill (our current recession has already reduced emissions by 6%, which Sens. Kerry and Barbara Boxer apparently think is real progress). The bill would reduce the portion of emissions covered by the caps, eliminating regulation of methane emissions from coal mines, landfills, and oil and gas pipeline distribution.

Both bills include offsets which would allow emitters (and the politicians in Washington) to claim we are hitting our reduction targets while actually emitting more carbon by "investing" in projects in the U.S. and other countries that ostensibly reduce carbon (whether or not they actually do)--a process that is fraught with potentials for fraud and abuse.

And both bills suffer from the flawed logic of thinking a cap-and-trade system would actually work, when we know it has not worked in Europe, and that the only way a cap-and-trade system could meet its emission targets in the U.S. is by shrinking our economy.

Congressional Budget Office director Douglas W. Elmendorf testified last week before the Senate Energy and Natural Resources Committee that the cap-and-trade provisions of the House bill would reduce the U.S. gross domestic product by 0.25% to 0.75% in 2020 ($60 billion to $180 billion), and by 1.0% to 3.5% in 2050.

Like Waxman-Markey, Boxer-Kerry would expand the control the government has over the American economy, businesses, and individuals. It would have little impact on reducing global warming but would significantly depress our economy. One wonders if the purpose of the Boxer-Kerry bill is really just to give the U.S. something to take to Copenhagen for the United Nation's Climate Change Conference in December.

High-cost policies with low-impact results are not in America's best interests, so we should postpone both bills and think through more clearly our desired energy policies.

from the San Jose Mercury News, 2009-Oct-5, by Dana Hull:

Apple quits U.S. Chamber of Commerce over global warming views

Adding momentum to the revolt against the U.S. Chamber of Commerce, Apple on Monday resigned from the business group because of its opposition to federal efforts to limit greenhouse gases.

Apple is the fourth company and the largest, as well as the first tech company, to part ways with the chamber as the debate over global warming legislation heats up in Congress. It is also the most significant defector because Apple is a leading American brand and consumers strongly identify with its products.

"Apple's departure is a clear signal that more and more of the chamber's members want it to download a new tune when it comes to climate change," said Peter Altman of the National Resources Defense Council.

"There is a growing recognition in the business community that strong clean-energy and climate legislation is the way to strengthen our economy, reduce our oil imports and reduce pollution, but the chamber is turning a deaf ear to the trend."

The chamber is the world's largest business federation, representing 3 million dues-paying businesses large and small. It has a formidable lobbying operation in Washington, touting on its Web site that it "consistently leads the pack on lobbying expenditures." Membership is voluntary and there are no concrete consequences for quitting.

The group has come under fire for opposing an Environmental Protection Agency plan, announced last week, that would allow the EPA to regulate greenhouse gas emissions from nearly 14,000 coal-burning power plants. The chamber also actively opposed the Waxman-Markey energy bill that was passed by the House in June. And a senior chamber official recently drew ridicule when he called for a "Scopes monkey trial of the 21st century" to evaluate evidence of global warming, referring to the 1925 trial of Tennessee teacher John Scopes, who was convicted of teaching evolution. Environmentalists called it a stalling tactic, saying the scientific evidence of climate change is overwhelming.

"Apple is committed to protecting the environment and the communities in which we operate around the world," Catherine Novelli, Apple's vice president of worldwide government affairs, said in a letter to Thomas Donahue, the U.S. Chamber of Commerce president and CEO. "We strongly object to the Chamber's recent comments opposing the EPA's effort to limit greenhouse gases."

The move comes amid efforts by Apple to burnish its green image. The Cupertino-based company revealed its carbon footprint — or total greenhouse-gas emissions — for the first time last month, announcing on its Web site that 53 percent of the 10.2 million tons of annual carbon emissions it takes responsibility for comes from consumer use of its products.

The company has taken a broad view of greenhouse gas emissions, using a "life-cycle analysis" to calculate greenhouse gas emissions for each product, from production to transportation, consumer use and recycling.

"We believe it has resulted in the broadest possible measure of the carbon footprint for each of our new products," Apple said in response to a lengthy questionnaire by the Carbon Disclosure Project, which publishes emissions data for the world's largest corporations. "No other electronics company reports this information at the product level, but we think they should."

Barbara Kyle, national coordinator of the Electronics TakeBack Coalition, which promotes recycling, said Apple has made great strides in recent years. Many of the casings of its products are now made not of plastic but aluminum, which is easier to recycle. Apple also has improved the energy efficiency of its products and has increased its recycling efforts. And it has phased out some of a the worst toxics, including brominated flame retardants (BFRs) and polyvinyl chloride (PVC).

"Apple is not waiting for legislation to ban these substances," the company boasts on the detailed "Environment" section of its Web site. "Not only is every Mac, iPod, and iPhone free of PVC2 and BFRs, we are also qualifying thousands of components to be free of elemental bromine and chlorine, putting us years ahead of anyone in the industry."

The exodus from the chamber began last month, when PG&E announced it was leaving because of the group's "obstructionist tactics" over efforts to regulate global warming. Two other utility companies — PNM of New Mexico and Chicago-based Exelon — followed PG&E's lead. Athletic shoemaker Nike resigned from the chamber's board of directors but has chosen to remain a member in hopes of changing the federation's climate-change policy from within.

As pressure on the chamber has mounted, speculation had grown about which Silicon Valley company would be the first to quit.

Former Vice President Al Gore, who was awarded the 2007 Nobel Peace Prize for his work fighting global warming, has been on Apple's board of directors since 2003. Apple declined to comment about Gore's role, if any, in its latest green efforts and decision to leave the Chamber of Commerce. Gore's personal office in Tennessee declined to comment.

from the Wall Street Journal, 2009-Oct-14, p.A22:

Apple, Nike and the U.S. Chamber
Putting green politics above the interests of shareholders.

The recent corporate resignations from the U.S. Chamber of Commerce have played in the media as a case of enlightened corporate stewardship vs. blinkered old businesses. But there's far more to this story—not least the way that Apple and Nike are putting green political correctness above the long-term interests of their own shareholders.

The Chamber needs "a more progressive stance on this issue" of climate change, declared Apple Vice President Catherine Novelli in a letter of resignation from the business lobby on October 5. Added Nike, announcing its resignation on September 30 from the Chamber board though retaining its membership: "US businesses must advocate for aggressive climate change." Both decisions were ostentatiously leaked to the media.

The first point to understand is the role of Al Gore, who is a member of the Apple board and perhaps the leading supporter of President Obama's cap-and-tax anticarbon legislation. Mr. Gore has also invested in renewable energy technologies that could make him even richer than he already is if new climate rules make renewables more competitive with carbon energy.

Meanwhile, Apple's Chief Operating Officer Tim Cook happens to sit on the board of . . . Nike. We're told that Nike CEO Mike Parker didn't discuss the Chamber move with his full board of directors before it was announced, and Nike didn't return our phone call asking for comment. In any case, we doubt it's an accident that Nike and Apple acted against the Chamber at the same time—and just when Democrats are trying to build new momentum for cap and trade in the Senate.

Both companies may figure they can afford a U.S. carbon tax because most of their manufacturing is done outside the U.S. Apple has an enormous "carbon footprint" of some 10 million annual tons of emissions to make and use its power-hungry gadgets. But nearly all of those products are made in China and other Asian countries where there are no carbon limits and aren't likely to be any time soon, if ever. According to calculations based on Apple's emissions figures, were the company to manufacture in the U.S., the Boxer-Kerry bill pending in the Senate would hit Apple with carbon taxes between $43 million and $108 million a year.

Nike, meanwhile, makes most of its shoes and apparel in 700 contract factories in countries such as South Korea and Vietnam—which also won't sign up for the Boxer-Kerry energy tax. The larger point is that neither Apple nor Nike would pay as much under a cap-and-trade bill as, say, the maker of Bobcat excavators in Bismarck, N.D., or your average Midwest natural gas utility. Green virtue is easier when someone else is paying for it.

Yet even this self-interested calculation is likely to be short-sighted for both companies. Since climate change is a global issue, green activists won't stop their carbon pursuit at the U.S. border. It wouldn't be long after cap and trade passed in the U.S. that Nike and Apple were pressured to move their manufacturing out of countries that haven't signed Kyoto II. That would threaten their production lines and cost structure, with potential damage to sales and competitiveness.

And if the companies fail to relocate, the next anticarbon lobbying policy step will be a carbon tariff against products made in China or Vietnam and sold in the U.S. A carbon tariff is already part of the House cap-and-trade bill and is gaining currency among Congressional protectionists, most recently Senator Lindsey Graham (R., S.C.). As companies that import nearly all of their products, Apple and Nike would be especially vulnerable. We wonder if Messrs. Cook and Parker thought through any of this before committing their employees and investors to this crusade.

The Chamber's great sin, according to Nike and Apple, is that it questioned the Environmental Protection Agency's right to regulate all greenhouse gases without new legislation. The Chamber has said that while it supports Congressional efforts to regulate emissions, it opposes EPA's attempt to grab that power for itself on the basis of an elastic reading of the Clean Air Act. This is a major issue for many Chamber members.

If companies are going to dump the Chamber over a single dispute, then the overall influence of business in Washington is likely to decline. The Chamber's job isn't to favor one company's agenda over another but to stand broadly for free trade, low taxes and limited regulation—principles that help U.S. business as a whole.

Having abandoned their business allies on climate change, Apple and Nike might wake up one day to discover they need those friends on one of their crucial issues. It will serve them right if they find themselves alone in the Beltway square.

from the Wall Street Journal, 2009-Oct-6, p.A22:

The War on Specialists
ObamaCare punishes cardiology and oncology to finance GPs.

In President Obama's Washington, medical specialists are slightly more popular than the H1N1 virus. Compared to bread-and-butter primary care doctors, specialists cost more to train and make more use of expensive procedures and technology—and therefore cost the government more money. Even so, the quiet war Democrats are waging on specialists is astonishing.

From Senate Finance Chairman Max Baucus's health-care bill to changes the Administration is pushing in Medicare, Democrats are systematically attacking specific medical fields like cardiology and oncology. With almost no scrutiny, they're trying to engineer a "cheaper" system so that government can afford to buy health care for all—even if the price is fewer and less innovative ways of extending and improving lives.

***

Take a provision in the Baucus bill that would punish any physician whose "resource use" is considered too high. Beginning in 2015, Medicare would rank doctors against their peers based on how much they cost the program—and then automatically cut all payments by 5% to anyone who falls into the 90th percentile or above. In practice, this rule will only apply to specialists.

Since there will always be a missing chair when the music stops, every year one of 10 physicians will be punished if he orders too many tests, performs too many procedures or prescribes too many drugs—whether or not the treatments result in better patient outcomes. The 5% fine is substantial given that Medicare's price controls already pay only 83 cents on the private dollar.

In Medicare, meanwhile, the Administration is using regulation to change how doctors are paid to benefit general practitioners, internists and family physicians. In next year's fee schedule, they'll see higher payments on the order of 6% to 8%. The loose consensus is that the U.S. does have too few primary care doctors—less than 5% of medical students are entering the field—in part because they're underpaid.

Fair enough. But this boost for GPs comes at the expense of certain specialties. The 2010 rules, which will be finalized next month, visit an 11% overall cut on cardiology and 19% on radiation oncology. They're targets only because of cost: Two-thirds of morbidity or mortality among Medicare patients owes to cancer or heart disease.

The way Medicare works is that Congress decides each year how much it wants to spend on doctors, period. If one area of medicine receives a larger slice of this pie, another must accept a smaller one. The portion sizes are determined using a formula known as Relative Value Units, or RVUs. Medicare assigns an RVU to each of 7,500 billable services—in 2008, a colonoscopy earned 5.64 of these units, a hip replacement 37.66. Then it multiplies a doctor's total RVUs by some dollar factor, currently about $36, and cuts a check.

The chunks Team Obama took out of cardiology RVUs are especially drastic. The basic tools of heart specialists—echocardiograms (stress tests) and catheterizations—are slashed by 42% and 24%, respectively. Jack Lewin, who heads the American College of Cardiology, said in an interview that the crackdown will cause "a horrible disruption" that will force many community and independent practices to close their doors, lay off staff or make senior patients wait days or weeks for tests and services.

Cancer doctors get hit because the Administration believes specialists order too many MRIs and CT scans. Certain kinds of diagnostic imaging lose 24% under new assumptions that machines are in use 90% of the time, up from 50%. There isn't a radiologist in America running an MRI 10.8 hours out of 12, unless he's lining up patients on a conveyor belt. But claiming scanners are used far more often than they really are lets the Administration "score" spending cuts.

And this change is applied to all expensive equipment, not just MRIs and CTs, so payments for antitumor radiation therapy will fall by up to 44%. The American Society for Radiation Oncology says it "will have a devastating effect on cancer patients' access to care."

One priority of the Baucus bill is to require the executive branch to wreak this kind of devastation every year, not just when a Democrat is President. It directs the Secretary of Health and Human Services to search out "potentially misvalued" RVUs, meaning those "for which there has been the fastest growth" or "that have experienced substantial changes in practice expenses." In other words, any specialty that grows too much must be targeted.

It's important to understand that these are "cuts" that don't actually cut any spending; the RVUs merely redistribute it from one medical bucket to another. In this case, Team Obama is sending a message to the medical community about its political priorities. The fee schedule is designed to avoid wild year-over-year payment swings, but HHS justified its decision with a flimsy survey whose data it won't release and whose results can't be replicated. Dr. Lewin told us that both HHS Secretary Kathleen Sebelius and budget director Peter Orszag refuse to meet with him to discuss the topic.

We have nothing against primary care physicians, and clearly the country could use more of them. But then, it could probably use a lot more doctors, including specialists, as the boomers age and the prevalence of obesity, diabetes and other chronic diseases rises. The increase in specialists has tracked advances over 50 years in medical science and technology. Democrats look at these advancements and see only the costs, not the benefits.

***

Markets are supposed to determine the composition of the workforce, not a command medical economy run out of Washington. It is perfectly insane to support one type of doctor by punishing others on a flawed theory about cost-control. The press passes all this off as routine when it bothers to notice, but we suspect our media colleagues would show more interest if Messrs. Obama and Baucus were deciding how much journalists should be paid and what they should cover.

If Democrats are going to stomp on specialists, they should at least be open about it. Then again, all Americans might take a different view of health-care "reform" if they understood that it means snuffing out the best medicine.

from RealClearMarkets.com, 2009-Sep-23, by Wendy Milling:

H.R. 3200 Will Collapse Global Medicine

What has been missing from the national discussion on health reform is an analysis of the dynamic consequences of significantly increasing the level of statism in the medical field.

If the United States implements H.R. 3200, the resulting conditions will not come to resemble that of any current Western medical system or bestow any of their purported advantages. The U.S. medical system will collapse, and it will take down every major medical system throughout the world with it.

H.R. 3200 would enact a series of synergistic causal sequences. This would start with an instantaneous increase in demand as new consumers enter the system or existing consumers demand more medical goods and services.

Clinics, practices, and hospitals currently rely on higher private insurance payouts to make up for the low reimbursement rates from Medicare. Under the new system, they would not receive it, either from the government plan or the private insurers. The government will not pay it. Insurance companies, required to cover pre-existing conditions, maintain coverage unconditionally, and cap premiums, will have no choice but to cut payments to providers.

This would quickly cut the profit margins of medical providers to unsustainable lows or convert them into losses. Many will go out of business in the short term, even if their industry representatives in Washington see no problem with conceding $150 billion "as an industry" to the government. This means a decreased supply of medical care.

The law of supply and demand will necessitate price increases for medical goods and services, but as providers, drug companies, and equipment manufacturers attempt to push up price levels in various ways, government will counter by imposing further price caps and limiting reimbursements to keep costs under control.

A quick glance at the pharmaceutical industry reveals an oncoming danger to global medicine here. The industry is one of the most profitable in the U.S. This profitability attracts investment capital, which is the stock seed planted to further advance pharma. The U.S. market makes up almost half of the sales of prescription drugs. This market is critical, because it makes up for the shortages incurred by drug price controls elsewhere.

With price caps imposed in the U.S., pharmaceutical, biotech, and medical equipment producers will raise the cost of future drugs and medical equipment, continuing their economic arms race with the government. The caps and limitations will also accelerate hospital, clinic, and private practice closings, exacerbating the cycle of increasing demand and decreasing supply in a positive feedback loop.

As the demand for medicine grows and the supply of it contracts, what is needed to keep the medical economy afloat is increased productivity. New technology and more efficient and effective techniques will have to come into existence to act as a downward force on prices and to satisfy demands that cannot now be met. Who will create them?

In a capitalist system, where capital and opportunity are plentiful, individual doctors pioneer new methods of surgery and treatment. Scientists conduct research, make discoveries, and use the knowledge to create novel drugs. Engineers develop new medical equipment or improve upon the old to aid doctors in their clinical practice. Businessmen create new management and insurance models to make the healthcare industry more productive, which in turn makes healthcare more affordable for the consumer.

The demolition of profits and a more austere and coercive environment will result in the flight of significant numbers of these people from the medical field. As the profits in the industry disappear, so will the supply of mental capital, as the best minds that would otherwise fuel the advancement of the sector will leave it for more profitable ones. It is worth noting here that the term "brain drain" was coined to describe such a loss from Great Britain after socialized medicine was instituted there in the 1950s.

This will be seen in many forms. There will be decreased interest in medical school among the best and brightest youth. There will be early retirements by experienced but frustrated doctors. The caps on prices and reimbursements will squeeze medical equipment manufacturers, who will lay off engineers and decrease their product development. Pharmaceutical and biotech companies will make cuts in research and development and lay off scientists, and their drug pipelines will become empty. Fewer smart people will choose a career in healthcare management or allied industries.

There will be no rescue of the medical system by productivity. Productivity in medicine will itself be in need of rescue.

The United States is the engine of medical innovation in the world. The collectivist medical systems in other countries cannot generate wealth by themselves; the net effect of statism is wealth destruction. They survive by a de facto free rider strategy on the profits and innovation in freer countries. Without the capital and the technological breakthroughs from the United States, their systems would be instantly unviable.

Other countries also strain to keep their socialized medical systems alive by initiating force against the private sector in every way permitted by modernity. They ration care or disallow treatments that are routine in the U.S. The imposition of drug price caps is widespread. France extracts massive sums of money from its people, including a 12.8% employer tax, a 5.25% income tax, and various other targeted taxes. Britain's NHS runs a £1.3 billion deficit ($2.1 billion). Its annual budget is £100 billion ($160 billion, or $1.6 trillion over 10 years), serving a population one-fifth the size of that of the United States.

While other countries decry the selfishness of the U.S., out of necessity, they cheat on their own philosophy of collective welfare by cutting slack to the private sector in ways that would be intolerable to the proponents of H.R. 3200. This includes the capping of legal liabilities and allowing drugs to be brought to market cheaper and more quickly than current Food & Drug Administration standards would allow. Such allowances are right, but they highlight the fact that these systems are a house of cards.

Precipitated by the decline in the U.S., the collapse of medicine across the globe would not be dramatic and loud, culminating in the cessation of all activity. There would still be doctors, patients, private companies, and motion between them. Instead, after initial and periodic convulsions-rapid adjustments and realignments, like an exothermic reaction leaving the world in a lower energy state-decay would set in.

The decay would be characterized by a pervasive increase in doctor shortages, unmotivated and incompetent doctors, overworked medical professionals, expensive and virtually useless public and private insurance plans, poor quality and deteriorating medical products and services, few biomedical advancements, desperate patients, black markets, unsafe medical tourism, physically and psychologically incapacitated patients, and foreshortened lives.

In such a state, world medicine would be vulnerable to powerful stressors that could push it past the breaking point. That stressor would likely be the onset of a flood of end-of-life demand by the Baby Boomer demographic, at which point the system would become irreversibly overwhelmed. At current life expectancies for U.S. males, this would occur around the year 2021.

At some point, all national plans would go bankrupt, necessitating either a move toward laissez-faire, or a descent into sub-industrial medicine.

Regardless of the details of the overhaul and the exact course of its implementation, we can know in advance that many people will die who otherwise would have survived. A major way that the laws of nature restore equilibrium in a new collectivist system is by killing off human beings. Human deaths are causally given because production decreases, and the disappearance of medical resources must lead to the ending of the lives which depend on those resources. Collectivism transforms a free medical system from a human safety net forever increasing in size, scope, and capabilities, into a game of musical lives, all the while its advocates croon about compassion and cost-savings.

Collectivism in medicine is a vain attempt to defy the law of causality and to substitute it with whim and want. All of the current proposed plans in Congress are premised upon collectivism. As such, they are unworkable, thoroughly incorrigible, and should be scrapped in their entireties. Only a move in the reverse direction, toward more freedom in medicine, can both save medicine and claim the mantle of morality.

from City Journal online, 2009-Sep-22, by Benjamin A. Plotinsky:

The Pharmaceutical Umbrella
One reason European health care works: America

To understand one of the most persistent myths in our health-care debate, forget for a moment about public options, health co-ops, and loopholes for illegal immigrants. Instead, imagine that it’s 1962, the hottest point of the Cold War, and that you’re reading a report comparing two countries’ strategies for resisting the Soviet menace. The United States, the report points out, spends billions of dollars a year on troops, tanks, warships, and missiles, while France spends a tiny fraction of that. Nevertheless, France and America are both unscathed by Soviet bombs. Therefore, the report concludes, France’s Cold War strategy is far more efficient than America’s. And you snicker at the obvious flaw in the reasoning, since you know that what has kept the Soviets away from France is precisely America’s enormous military budget. If not for the nuclear umbrella that the United States has unfurled over the Continent, Volgas might be cruising down the Champs Elysées.

What does this have to do with health care in 2009? In a recent paper widely circulated on the Internet (“the best paper you’ll read today,” blogger Ezra Klein calls it), Urban Institute researchers Elizabeth Docteur and Bob Berenson review various studies that compare health care in America and in other developed countries, most with nationalized systems. “The evidence suggests that other developed countries achieve comparable quality of care while devoting at most two-thirds the share of their national income,” the authors write. This should give pause, they continue, to those who oppose proposals to reform American health care “in ways similar to those used in other countries.” They conclude: “One can surely argue that U.S. health care quality is not at risk from the kinds of health reform proposals receiving attention.”

Authors of studies like this base most of their conclusions on “outcomes” in different countries—mortality rates, survival rates for various diseases, and so forth. One common objection to this approach is that these outcomes don’t always reflect the quality of health care, because so many other factors—diet, exercise, environment—enter into the equation. If Americans eat a lot of fast food, say, it stands to reason that they will suffer from a lot of heart attacks, no matter how good their cardiologists are.

But another, less widely heard objection is that studies like Docteur’s and Berenson’s don’t consider what we might call the pharmaceutical umbrella that America spreads over the developed world. “Drugs supply almost all the real health care these days,” Peter Huber has written in City Journal. And as a 2006 article by Henry G. Grabowski and Y. Richard Wang in the peer-reviewed journal Health Affairs makes plain, the lion’s share of new chemical entities (NCEs)—that is, genuinely new drugs—are invented in the United States. Between 1993 and 2003, the authors found, 437 NCEs were introduced around the world. America was responsible for 152 of them—far more than any other country—with Japan coming in second with 88 and Germany a distant third with 42. The United States also led the world in the introduction of “global NCEs,” drugs “introduced in a majority of the world’s leading drug markets.” (A chart makes these numbers clear.)

Just last month, Health Affairs released a reexamination of Grabowski’s and Wang’s work by Donald W. Light, who boldly claimed that the very same research actually “shows that the United States never overtook Europe in research productivity.” Light’s argument, however, is simply that the European Union as a whole was still producing slightly more NCEs than the United States was between 1993 and 2003—183, versus America’s 152—and that European drug production did better than American if you factor in how much less was spent on research and development in Europe. More recent figures, however, show that starting around the beginning of this century, the United States finally overtook all of Europe in new drug production. As for the scarcity of R&D money in Europe, it hardly seems something for the Continent to celebrate.

And the Europeans know it. A 2000 study prepared by Alfonso Gambardella, Luigi Orsenigo, and Fabio Pammolli for the European Commission—a “seminal report that has shaped European policy,” Light says—agrees that “the European industry has been losing competitiveness as compared to the USA.” Further, the drugs that European companies do invent probably aren’t the most useful ones, judging from their sales. “In 1999 more than 80 percent of the total sales of the world top 15 drugs was originated by US companies,” the Gambardella paper found. “US firms are now the dominant source of innovation and innovative drugs, with Europe lagging behind.”

Why is this important? One reason for America’s drug dominance (though far from the only one) is America’s unsocialized medicine. Here, with the exception of a few programs like Medicaid and the VA system, the government doesn’t regulate the price of drugs, so when a company invents something big—the latest miracle cancer drug, say—it strikes it rich, making its executives hunger for more. Take away the profit motive, as government-run medicine often does by forcing drug companies to sell at discounted prices, and innovation will dry up. “EU policy has kept pharmaceutical price inflation equal to average consumer price inflation over the last 19 years,” write Joseph Golec and John Vernon in a 2006 paper for the National Bureau of Economic Research—“with real costs of about $5 billion in foregone R&D spending, 1,680 fewer research jobs and 46 foregone new medicines.” True, America’s unregulated environment benefits any drug company that sells here, regardless of its nationality—but American companies profit most, since even in today’s global economy, a higher proportion of their sales than of European companies’ sales takes place in America.

So socialist Europe, by using American drugs (especially the “global NCEs” that Grabowski and Wang identify), is profiting from good old-fashioned American free enterprise. Europe doesn’t pay its way, either. As Guy Sorman wrote recently in City Journal, France’s socialized health-care system bullies American pharmaceutical companies into accepting bargain-basement prices for their wares. The companies make up for the loss by charging Americans more.

But the lesson here isn’t that America should be stingy about subsidizing French health care. If American consumers and drug companies play a disproportionate role in protecting the world from dangerous microbes—just as America did in protecting it from Soviet missiles—we should be proud. (It would be too much to hope that this good deed will go unpunished among European elites.) No, the lesson is to be skeptical of reports speaking glowingly of socialized health-care systems, because those systems wouldn’t work nearly as well as they do without unsocialized American medicine.

Benjamin A. Plotinsky is the managing editor of City Journal.

from USA Today, 2009-Sep-27, by John Fritze:

Sen. Rockefeller seeks to extend health bill's protections

WASHINGTON — More than 70 million people who work at large companies would not get health insurance protections sought by President Obama under a closely watched Senate health care bill, a Democratic lawmaker involved in the debate says.

The proposed rules, which Obama said will "make the insurance you have work better for you," would prohibit insurers from denying coverage because of pre-existing conditions or imposing limits on how much will be paid out to sick patients.

However, under legislation in the Senate Finance Committee, the new rules would not apply to people who work for large companies that self-insure, meaning the employer pays health care claims out of its revenue rather than relying on a private insurer, says Sen. Jay Rockefeller, D-W.Va.

"They can be cut off; there are no caps," says Rockefeller, the second-highest-ranking Democrat on the committee. "I'm determined to fix it."

OPINION: To cover the uninsured, go where the money is

Rockefeller has proposed expanding the insurance regulations to cover everyone in an amendment he hopes will be considered this week.

A spokeswoman for Sen. Max Baucus, D-Mont., who drafted the bill, said the protections are targeted to employees of small businesses and people who buy insurance on their own because they have the most trouble obtaining good coverage.

"Health care reform is about building on what works in our system and fixing what doesn't," Baucus spokeswoman Erin Shields said in a statement. "The biggest problems exist today for people who don't have employer-sponsored insurance."

As many as 73 million people, or 55% of those who get insurance through private-sector jobs, are covered in self-insured plans, according to the non-partisan Employee Benefit Research Institute. Workers are often not aware their plans are self-insured because employers hire insurance companies to process claims.

Business groups have resisted the new regulations for large companies. In an e-mail to local chapters, U.S. Chamber of Commerce lobbyist R. Bruce Josten called the Rockefeller amendment "dangerous," arguing that it would "significantly and adversely impact larger employers."

In most states, large employers are defined as those that have more than 50 employees.

The Finance Committee continues work this week on the health care bill, which would cost $900 billion in the first 10 years and require everyone to buy a health care policy.

Other versions of the bill in Congress offer more of the protections for workers who receive health insurance through large employers, said Ron Pollack, executive director of non-partisan Families USA, which supports changing the health care system. Still, Pollack credited Baucus for focusing on small-business employers and individuals buying insurance outside of work because, he said, those are "the insurance markets that have the done the least to protect people."

Among the protections under consideration in the Senate Finance bill:

• Capping how much insurers will pay over a year or lifetime would end for small business and individual policies, but insurers would be barred only from imposing "unreasonable" caps for larger companies.

• Employees hired at small businesses could not be denied coverage for a pre-existing condition. For larger companies, current law would apply, which allows companies to deny claims for pre-existing conditions up to a year if the new employee allowed previous coverage to lapse.

• Insurers could no longer consider gender, health status and other risk factors when setting premiums for individual and small-business policies. Those factors could still be considered for larger employers.

Clifford Roberti, a lobbyist for the Self-Insurance Institute of America, said most large employers have "the most generous benefits out there."

"The self-insured plans are the area of insurance that's working," he said.

from the Wall Street Journal, 2009-Sep-10, p.A21, by Mark Mix:

Read the Union Health-Care Label
Get ready for Detroit-style labor relations in our hospitals.

In the heated debates on health-care reform, not enough attention is being paid to the huge financial windfalls ObamaCare will dole out to unions—or to the provisions in the various bills in Congress that will help bring about the forced unionization of the health-care industry.

Tucked away in thousands of pages of complex new rules, regulations and mandates are special privileges and giveaways that could have devastating consequences for the health-care sector and the American economy at large.

The Senate version opens the door to implement forced unionization schemes pursued by former Govs. Rod Blagojevich of Illinois in 2005 and Gray Davis of California in 1999. Both men repaid tremendous political debts to Andy Stern and his Service Employees International Union (SEIU) by reclassifying state-reimbursed in-home health-care (and child-care) contractors as state employees—and forcing them to pay union dues.

Following this playbook, the Senate bill creates a "personal care attendants workforce advisory panel" that will likely impose union affiliation to qualify for a newly created "community living assistance services and support (class)" reimbursement plan.

The current House version of ObamaCare (H.R. 3200) goes much further. Section 225(A) grants Secretary of Health and Human Services Kathleen Sebelius tremendous discretionary authority to regulate health-care workers "under the public health insurance option." Monopoly bargaining and compulsory union dues may quickly become a required standard resulting in potentially hundreds of thousands of doctors and nurses across the country being forced into unions.

Ms. Sebelius will be taking her marching orders from the numerous union officials who are guaranteed seats on the various federal panels (such as the personal care panel mentioned above) charged with recommending health-care policies. Big Labor will play a central role in directing federal health-care policy affecting hundreds of thousands of doctors, surgeons and nurses.

Consider Kaiser Permanente, the giant, managed-care organization that has since 1997 proudly touted its labor-management "partnership" in scores of workplaces. Union officials play an essentially co-equal role in running many Kaiser facilities. AFL-CIO President John Sweeney called the Kaiser plan "a framework for what every health care delivery system should do" at a July 24 health-care forum outside of Washington, D.C.

The House bill has a $10 billion provision to bail out insolvent union health-care plans. It also creates a lucrative professional-development grant program for health-care workers that effectively blackballs nonunion medical facilities from participation. The training funds in this program must be administered jointly with a labor organization—a scenario not unlike the U.S. Department of Labor's grants for construction apprenticeship programs, which have turned into a cash cow for construction industry union officials on the order of hundreds of millions of dollars each year.

There's more. Senate Finance Committee Chairman Max Baucus has suggested that the federal government could pay for health-care reform by taxing American workers' existing health-care benefits—but he would exempt union-negotiated health-care plans. Under Mr. Baucus's scheme, the government could impose costs of up to $20,000 per employee on nonunion businesses already struggling to afford health care plans.

Mr. Baucus's proposal would give union officials another tool to pressure employers into turning over their employees to Big Labor. Rather than provide the lavish benefits required by Obamacare, employers could allow a union to come in and negotiate less costly benefits than would otherwise be required. Such plans could be continuously exempted.

Americans are unlikely to support granting unions more power than they already have in the health-care field. History shows union bosses could abuse their power to shut down medical facilities with sick-outs and strikes; force doctors, nurses and in-home care providers to abandon their patients; dictate terms and conditions of employment; and impose a failed, Detroit-style management model on the entire health-care field.

ObamaCare is a Trojan Horse for more forced unionization.

Mr. Mix is president of the National Right to Work Committee.

from the Wall Street Journal, 2009-Oct-1, by Kimberley A. Strassel:

Rent-Seekers Inc.
Climate-change legislation helps a few big utility companies, but costs most Americans.

It isn't often an energy company (of all things) gets to present itself as an environmental crusader, cozy up to Washington rulemakers, buy political protection, and pad its bottom line—all in one neat little announcement. So give Pacific Gas & Electric, PNM and Exelon credit for going for the gold.

The three utility giants have made news recently by quitting the U.S. Chamber of Commerce. Their finer sensibilities, they explained, would no longer allow them to associate with an organization lacking in environmental fervor. How dare the Chamber demand the Environmental Protection Agency be transparent about the science it is relying on to regulate all carbon energy use. Heresy! "As a company with a clear and strong position on the importance of addressing climate change," we must go our own way, lamented PG&E's CEO Peter Darbee.

Fortunately for Mr. Darbee, that way leads to the bank. As much as supporters of cap and tax would like to spin this as a new corporate ethic, the reality is less edifying. The lesson here is that big business political rent-seeking is alive and thriving.

"The carbon-based free lunch is over," declared Exelon CEO John Rowe, neglecting to mention that his company's free lunch is only beginning. Under the House's climate-change bill, a few utilities—primarily those that have made big bets in renewable and nuclear energy—are poised to clean up once Congress hands them carbon emission credits. The bill sets aside 35% of the free credits for utilities. Exelon and other "renewable" utilities will get a huge piece of that pie.

An internal memo produced by Bernstein Research in June described how Mr. Rowe met with investors to rejoice that the House legislation will allow Exelon to rake in additional revenue—by some estimates, up to $1.5 billion a year. Others will pay for this Exelon privilege, of course—notably, Midwestern customers of traditional coal utilities who will see their energy prices double. But hey, all's fair in love and lobbying.

"Seeking greater competitive advantage through regulatory means is, lamentably, an entrenched fact of life in some corporate boardrooms . . . But breaking with an organization and creating a public stage on which to tout a company's green credentials is overwrought. This is about profit, not Gaia," says Oklahoma Sen. Jim Inhofe.

Speaking of senators, the utility exodus conveniently came only days before Sen. Barbara Boxer released her own draft climate bill. And Mrs. Boxer, also conveniently, left blank the portion allocating credits—all the better to bribe support out of key industry players by dangling precious goods in front of them. Emancipated from the Chamber, Exelon and others are free to play ball. The EPA's new emissions rules were also announced this week in tune with the Boxer bill, reminding companies that if they don't work with Congress, the EPA will make them pay without any compensating emissions credits.

Let's also not forget that Chicago-based Exelon and employees, including Mr. Rowe, contributed tens of thousands of dollars for their home-city presidential aspirant. And that Mr. Obama's senior adviser, David Axelrod, was once a consultant to Exelon. In an energy world in which winners and losers are picked on the Potomac, there is no harm in reminding the president who his friends are.

The move also keeps the mob at bay. Caught flat-footed by public outrage over health care, liberal interest groups are now attacking opponents of the Democratic agenda in personal terms. For the crime of talking straight about ObamaCare, former House leader Dick Armey and former New York Lt. Gov. Betsy McCaughey have been targeted and lost jobs in the private sector. The Natural Resources Defense Council is attempting a similar takedown of Chamber President Tom Donahue, in retribution on climate. The utility execs hope to avoid that bull's-eye. As extra insurance, Mr. Rowe this spring taped an ad with the Environmental Defense Fund, the smoothest of the green lobbies, to plump for climate legislation.

The Chamber's sin was giving the utilities the excuse to bolt by suggesting there be a "trial" on the science. The organization is doing its job, representing all its other members that will foot the climate bill. More astonishing than the exits from the Chamber is the news that the administration won't grant the business community's simple request to be transparent on its science. This obfuscation is becoming habit.

The stonewalling of the Chamber follows the muzzling of a career EPA scientist—Alan Carlin—who had questioned the scientific basis of the agency's moves. The agency is now considering shuttering Mr. Carlin's entire department—whose job it is to examine the economic consequences of agency rules. Treasury only reluctantly released climate documents demanded by the Competitive Enterprise Institute, and only after redacting a section about cost. Under pressure, it recently released the complete documents. So only now are we discovering that Team Obama believes a climate bill could cost the economy up to $300 billion annually.

The favored utilities don't mind this lack of transparency, since the more consumers realize how much they will pay for climate legislation, the less they support it. And save a few lucky utilities, pay America will.

from Dow Jones Newswires via WSJ.com, 2009-Sep-28, by Cassandra Sweet:

UPDATE: Exelon Latest To Leave US Chamber Over Climate Policy

SAN FRANCISCO--Power company Exelon Corp. (EXC) on Monday joined a stream of companies quitting the U.S. Chamber of Commerce over the chamber's stance against federal climate-change legislation.

The decision by Exelon, the nation's biggest nuclear power plant operator, follows similar moves last week by utilities PG&E Corp. (PCG) and PNM Resources Inc. (PNM), and highlights a growing rift in the nation's power sector and in other industries over climate policy. The U.S. government is under pressure, both from other countries and from U.S. states, to commit to reductions in greenhouse-gas emissions, particularly with the approach of a key global climate-change treaty summit in Copenhagen in December.

Chicago-based Exelon said the U.S. government needs to set climate-change policy promptly so companies can "put a price on carbon" and figure out how much it will cost to cut their emissions. The U.S. House of Representatives in June passed a landmark bill that would require the U.S. to cut greenhouse-gas emissions 17% from 2005 levels by 2020, and create a market-based program called cap-and-trade in which companies could buy and sell the right to emit carbon dioxide.

"The carbon-based free lunch is over," Exelon Chairman and Chief Executive John W. Rowe said in a statement. "But while we can't fix our climate problems for free, the price signal sent through a cap-and-trade system will drive low-carbon investments in the most inexpensive and efficient way possible."

The companies' departures are unlikely to change the Chamber's position on climate-change policy, said David Chavern, the group's chief operating officer. He added that although the Chamber opposed the House bill and it disagrees with plans by the U.S. Environmental Protection Agency to begin regulating greenhouse-gas emissions, the group isn't opposed to U.S. climate-change legislation.

"Congress should do everything it can to promote and incentivize technology development and other policies that allow us to control carbon in ways that don't trash the economy," Chavern said.

Exelon, PG&E and PNM all operate nuclear power plants and emit far less carbon dioxide than some of their peers, particularly companies that operate large fleets of coal-fired power plants. Coal plants produce roughly twice the greenhouse-gas emissions of similarly sized natural gas-fired plants. Nuclear power plants emit almost no greenhouse-gas emissions.

Despite their differences, U.S. power companies, represented by the lobbying group Edison Electric Institute, banded together in support of the climate-change legislation that passed the House.

The U.S. Chamber opposed that bill, sponsored by Reps. Henry Waxman, D-Calif., and Edward Markey, D-Mass. It also recently suggested that the U.S. hold a "Scopes-like" trial to debate evidence that climate change is man-made, in response to a proposed finding by the EPA that global warming poses a danger to public health.

The EPA's proposed finding and potential greenhouse-gas rules are in response to a 2007 Supreme Court ruling that directed the agency to determine whether greenhouse gases are pollutants that should be regulated under the Clean Air Act.

California Gov. Arnold Schwarzenegger last week criticized federal lawmakers for delaying action on climate-change legislation and urged them to ignore what he called "naysayers" who oppose such legislation.

California's 2006 climate-change law requires energy and other companies to cut their greenhouse-gas emissions starting in 2012. Ten Northeastern states, including New York and New Jersey, require power companies to cut their greenhouse-gas emissions under a program called the Regional Greenhouse Gas Initiative.

U.S. Sen. Barbara Boxer, D-Calif., is expected to unveil a climate-change bill shortly.

from the Wall Street Journal, 2009-Oct-8, p.A16:

Another Scary Czar
Some Blue Dogs have a better way to protect financial consumers.

The time of year has arrived again when the stores fill up with the masks and costumes of Halloween. Some folks probably think Washington has spent most of the past year creating scary things, from the Stimulus Monster to the Trillion Dollar ObamaCare castle. But wait, there's more. Moderate Democrats in Congress, small-town bankers and their customers are now trying to protect themselves from yet another Beltway "czar."

The name of this proposed Frankenstein is the Consumer Financial Protection Agency, or CFPA. Under the current draft in Barney Frank's Committee on Financial Services, the consumer czar would have the authority to collect fees from financial firms and dictate the "manner, settings and circumstances for the provision of any consumer financial products or services." The agency could require lenders to submit an unlimited amount of information, as often as the czar demands.

America's new regulator of lending would have the power to declare products and services "unfair" and "abusive." Obviously any such designation by a federal agency would create massive liability for services that were legal at the time they were offered. There will be no escape from the lawyers and their pitchforks: The lending czar could prohibit consumers and companies from agreeing to settle their disputes with arbitration instead of litigation. Boo.

The CFPA would get an oversight board made up of the heads of other financial regulatory agencies. But this is merely an apparition: The legislation explicitly states that the board has no executive authority. None. It can only "advise" [in Russian, “soviet” -AMPP Ed.] the director. This absence of effective checks and balances doesn't exactly fit with the mantra of responsibility in Washington these days.

The nominal point of this effort is to again punish the Wall Street titans for their sins.The good news is that it is dawning on Members of both parties in Congress that the CFPA monster is likely to damage the availability of consumer credit for their constituents. As analyst Meredith Whitney recently wrote in these pages, credit card lines have dropped 25% since last year. Credit lines available via credit cards are a critical source of financing for small businesses.

Is this decline entirely the result of the financial crisis, or are card issuers responding to new Federal Reserve regulations finalized in December? The Fed rules make it harder to change credit terms on existing customers. Congress and the President went further this past spring, enacting new restrictions on the ability of card issuers to raise rates, including on customers who don't pay on time.

This means that many former customers are simply no longer going to be profitable for banks. Expect more reductions in credit lines as the issuers try to adapt.

Undeniably it would benefit both lenders and borrowers if less credit were the result of stronger underwriting. That would prevent loans destined for default. But the consumer-protection diktats of the CFPA czar in far-off Washington will be explicitly divorced from considerations of bank safety and soundness.

Moderate Democrats, making yet another run to protect their constituents back home, have been circulating an alternative to the Frank proposal. They would immediately assign the existing federal regulators to a council that would ensure consistent rules for serving consumers across all institutions. They would also add state financial and insurance officials, elected by their peers among state regulators, to benefit from their expertise. The council would set broad rules on consumer protection and disclosure to eliminate perceived regulatory gaps.

Mr. Frank wants his committee to throw the switch on his own CFPA bill next week. Does he have the votes? As always, moderate Democrats fear that crossing the Chairman would mean the end of their influence.

Supporting Mr. Frank also has a cost, however. Rural members are hearing from community bankers that their strapped institutions can't afford new layers of Washington regulation to pay for the sins of Wall Street. In truth, many smaller banks also bet heavily on real estate, but are in no shape to take another hit to profitability.

The President has been giving speeches lately about all he's done to help the economy. Efforts like the CFPA monster, however, look more and more as if the crisis is being used simply to send more bureaucracy in the direction of an economy that can scarcely afford it.

from the Wall Street Journal, 2009-Sep-25, p.A14:

Fifty Eliot Spitzers
That's what the Frank-Obama proposal would unleash on banks.

Congress and the Treasury have been forced to peel back their financial reform ambitions, which is some cause for relief. But not nearly enough, because their plan for a new Consumer Financial Protection Agency would still unleash 50 state attorneys general to harass America's banks. Think Eliot Spitzer, without the self-restraint.

Under pressure from community bankers and Blue Dog Democrats, Barney Frank has been forced to eliminate the requirement that all credit terms be "reasonable"—whatever that means, other than an invitation to lawsuits. The House Financial Services Chairman has also dropped a demand that all banks offer "plain vanilla" financial products designed by a federal bureaucracy.

But the Frank-Obama proposal still contains the Treasury's not-so-bright idea to require all banks to comply with national rules, plus a different set of regulations in each state where they operate. The regulatory possibilities are endless, starting with the fact that each state could impose different rules for pricing, product features, repayment schedules, bank capital requirements, consumer disclosure, regulatory reporting requirements, and so on. If each state can set its own rules, expect endless legal confusion over which law prevails when a bank in one state serves a customer in another.

If a particular product is legal in New York, but illegal in New Jersey, can it be advertised in the New York media market? Will a family moving from Washington, D.C. to the Virginia suburbs be required to change all of the financial products they use? Comptroller of the Currency John Dugan warned in a speech yesterday of the chaos to come: "This radical change is fundamentally at odds with the concept of efficient national standards for national products and services offered across state lines."

The framers created the Commerce Clause of the Constitution precisely to prevent local and state governments from strangling free trade among the states. But the framers left it up to Congress to decide when to pre-empt state authority. Therefore the Frank-Obama plan is probably not unconstitutional. It merely overturns an 1864 judgment made by Abraham Lincoln and Congress that has allowed a national market in banking to flourish ever since.

The Frank-Obama rewrite of the National Bank Act would give state AGs the kind of enforcement power that even Mr. Spitzer, the former New York enforcer, probably never imagined. Not only could 50 attorneys general sue to enforce their new state laws; they would also gain the power to enforce federal laws. So even a practice deemed legal under federal law by federal authorities would still be open to 50 other interpretations, with the inevitable cost and confusion that would result.

A lawyer assault on interstate banking may sound like an assault on just the biggest national banks, but hundreds of banks have business in more than one state. If this is intended to be populist payback against Citigroup and the other big banks that had to be saved by the taxpayer, it misses the mark. The big banks are fighting the proposal, but they will learn to love it, as it impedes upstarts seeking to compete with the too big to fail crowd. Anyone starting an Internet bank, for example, would need to throw out the old business plan and contemplate the compliance costs inflicted by 51 separate regulators—52 if a customer logs on from Washington, D.C.

For all of this hassle and expense, we'd like to see the evidence that consumers will be better off when state bureaucracies start regulating interstate commerce. It is true that the distortions and subsidies dictated by federal regulators helped to create the credit crisis, but that doesn't mean that more state regulation would be an improvement. The Office of the Comptroller of the Currency has compiled a list of the worst mortgage companies measured by foreclosures on loans originated from 2005 through 2007. Of the worst 20 on the Comptroller's list, 14 were regulated by states.

This message is beginning to get through to Congress, and Mr. Frank told reporters Wednesday that he's willing to consider other views on whether to unleash state regulators. "It is something under discussion," said Mr. Frank. "It is going to be a collegial decision." That would be a first for this Congress, but after walking the Nancy Pelosi plank on so much bad and unpopular legislation, rank-and-file Democrats are finally starting to think for themselves.

The best outcome would be to defeat the new consumer agency entirely. Even a financial version of the Consumer Product Safety Commission—with ex post facto enforcement power—would only mean more expensive products, and fewer of them. That's no way to protect consumers or taxpayers.

from Commentary Magazine, 2009-Oct, by John Podhoretz:

The Return of Bad Ideas

These days, one of the strangest places on earth is Times Square, but not for the reasons one would have expected a mere 15 years ago. Its odd atmosphere is not due to transvestite hookers like the ones who worked on the corner of 46th and Eighth when I lived down the block in the early 1980s, nor the dozens of porn theaters that overtook the neighborhood in the 1970s like swine flu through a middle school. The neighborhood is so improved that faux-boho nostalgists are constantly bemoaning the loss of the delightful local color that wasn’t delightful at all if you had the misfortune to be resident in the midst of it.

No, the new strangeness is due to the fact that Broadway, the Great White Way itself, has been denuded of automobile traffic by order of the mayor, Michael Bloomberg, in June. Under the billboards and the neon, the street itself has been painted a weak ochre with outdoor furniture—chairs and tables and divans—sitting around in place of taxicabs and trucks and cars. Cars still move down Seventh Avenue, which is right next to it, but a wide expanse that is neither park nor street suddenly took Broadway’s place.

The overall effect is bizarre. Pedestrians don’t quite know what to do with the extra space; they mill about confusedly. While the sidewalks of Times Square did suffer at times from grievous overpopulation, especially in the hours before and after the Broadway theaters plied their wares, most of the time they were no more than vibrantly busy. The spillover from the sidewalk to the street occasioned by the removal of automobiles is unnatural and discomfiting.

The stated motivation for the street closure is a peculiar one. Bloomberg’s administration claims that by eliminating several key blocks from the automotive grid and making the passage by car through Manhattan’s midtown more difficult, the end result will be a net improvement in the city’s horrible traffic. This is another species of the absurd but longstanding argument that road improvements worsen congestion—and, by logical extension, that making it more difficult to use roads for traversal will somehow reduce it. It is true that taxi and truck drivers are avoiding Broadway like the plague in the half-mile north of the closure. Which means they are taking Fifth, Seventh, Ninth, and Eleventh Avenues on their way downtown instead, thus oozing the supposed traffic crisis from Times Square throughout the West Side and wreaking havoc elsewhere.

In the meantime, the new plan is a havoc of its own. Steve Cuozzo of the New York Post is appropriately withering on the subject, calling the new street pattern “an unconscionable tampering with the chemistry of the city’s most iconic place, with results already visibly disastrous.”

But surely the oddest thing about the Times Square disaster is that it was entirely predictable, based on hard-won wisdom of the effects of these sorts of measures on cities across the country—including New York City. And it is surely instructive that, in 2009, that hard-won wisdom was simply forgotten or ignored by a resourceful, overconfident, and high-handed politician intent on leaving a dramatic thumbprint on his town no matter what.

Perhaps the craziest of the great urban-planning crazes from the late 1950s onward was the conversion of troubled center-city areas into pedestrian malls.1 From Kalamazoo, Michigan, in 1959, to Sacramento, California, in 1969, to Chicago’s State Street in 1979, Brooklyn’s own Fulton Street in the 1970s, and dozens of others, cities went on a street-closing binge in their downtowns in an attempt to reverse the slide in the fortunes of once vital shopping districts. The results were catastrophic. In nearly every instance, the pedestrian mall only hastened the neighborhood’s decline, and in city after city the streets were eventually restored to their original condition—though in the cases of Kalamazoo, Sacramento, and Chicago, the reversal literally took decades to effect.

By the time the consensus changed and the street patterns were restored, politicians were literally involving themselves in the destruction of the barriers to cars. In Chicago, Mayor Richard Daley manned a jackhammer on the morning in 1996 when State Street’s concrete blocks were removed. “As mayor,” he said, “I have found it difficult to find out whose idea this was in the first place.” And indeed, State Street’s restoration was the hinge moment in the revival of Chicago’s Loop, with grimy office buildings retrofitted into luxury condominiums and the creation of a magnificent new park just blocks away, the sort of place that welcomes rather than repels foot traffic.

As Dave Feehan of the International Downtown Association described the malls:

They were designed in some ways after European cities that had pedestrian streets. However, we made several mistakes in doing this in the U.S. We didn’t look at the way European streets work or are designed.

European streets were, of course, “designed” in the centuries that preceded the invention of the automobile, and those areas where cars cannot really tread have an organic feel to them. But this nation’s great cities either anticipated the arrival of the car or were explicitly laid out with the car in mind. An American street can be turned into a semi-park only by political fiat—and a semi-park is all Broadway can be anyway, since Bloomberg’s Broadway mall is interrupted every hundred feet by an intersection with a numbered street to afford through-passage to . . . automobiles.

 Bloomberg can argue that the Broadway -experiment differs from what came before because the change is not an attempt to reverse the decline of Times Square but to manage the consequences of its roaring success. Whatever its purpose, the effect is already negative, as Cuozzo writes:

Two Times Square restaurants told me on a not-for-attribution basis that business has been down since the plazas were set up after Memorial Day—a fact that’s counterintuitive until you realize that a horde of milling, idling tourists can chase away purposeful strollers looking for a place to eat. In fact, leading businesspeople are alarmed over the damage the scheme threatens to do to Times Square’s office buildings, stores, hotels, restaurants and theaters—all industries reeling from the recession.

No matter. Bloomberg has a habit of ignoring the lessons of recent history when they do not comport with his desires. At the same time that he introduced the Broadway closure, Bloomberg initiated an aggressive new system of bike lanes in various parts of Manhattan, despite the fact that exactly the same thing was tried under Mayor Ed Koch in 1981 and abandoned almost immediately when it became apparent they were taking up 10 percent of the avenues but hosting only a few hundred cyclists a day.

What will happen with Times Square and the bike lanes is anybody’s guess; supposedly the matter is being studied through the end of the year, and no final decision to keep them has been made. But the larger lesson here has to do with the nature of political ideas in a democracy. The pedestrian mall was an idea; the notion of limiting traffic to improve traffic is yet another idea; the replacement of cars by bicycles still another idea. They were and are interesting ideas, innovative ideas, ideas that are fun to discuss and even more entertaining to design. The one complicating factor is that there are ideas that have actually been made flesh.

In practice, they proved to be, and still prove to be, bad ideas. And now these ideas are again in force—just as Barack Obama is in force with a panoply of statist ideas that had seemed to have landed on the ash-heap of history in 1996, when Bill Clinton declared that the “era of big government is over.”

In a democracy, nothing is ever over. Bad ideas come roaring back, and good ones are tossed aside in fits of boredom and an excessive hunger for social and political experimentation. To which one can only invoke the wisdom of Solomon and say, “This too shall pass.” The only question is how much damage is done before it does.

from the Wall Street Journal, 2009-Oct-3, p.A12:

The Young and the Jobless
The minimum wage hike has driven the wages of teen employees down to $0.00.

Yesterday's September labor market report was lousy by any measure, with 263,000 lost jobs and the jobless rate climbing to 9.8%. But for one group of Americans it was especially awful: the least skilled, especially young workers. Washington will deny the reality, and the media won't make the connection, but one reason for these job losses is the rising minimum wage.

Earlier this year, economist David Neumark of the University of California, Irvine, wrote on these pages that the 70-cent-an-hour increase in the minimum wage would cost some 300,000 jobs. Sure enough, the mandated increase to $7.25 took effect in July, and right on cue the August and September jobless numbers confirm the rapid disappearance of jobs for teenagers.

The gap, in percentage points, between the U.S. jobless rate for teens and for the population as a whole

The September teen unemployment rate hit 25.9%, the highest rate since World War II and up from 23.8% in July. Some 330,000 teen jobs have vanished in two months. Hardest hit of all: black male teens, whose unemployment rate shot up to a catastrophic 50.4%. It was merely a terrible 39.2% in July.

The biggest explanation is of course the bad economy. But it's precisely when the economy is down and businesses are slashing costs that raising the minimum wage is so destructive to job creation. Congress began raising the minimum wage from $5.15 an hour in July 2007, and there are now 691,000 fewer teens working.

As the minimum wage has risen, the gap between the overall unemployment rate and the teen rate has widened, as it did again last month. (See nearby chart.) The current Congress has spent billions of dollars—including $1.5 billion in the stimulus bill—on summer youth employment programs and job training. Yet the jobless numbers suggest that the minimum wage destroyed far more jobs than the government programs helped to create.

Congress and the Obama Administration simply ignore the economic consensus that has long linked higher minimum wages with higher unemployment. Two years ago Mr. Neumark and William Wascher, a Federal Reserve economist, reviewed more than 100 academic studies on the impact of the minimum wage. They found "overwhelming" evidence that the least skilled and the young suffer a loss of employment when the minimum wage is increased. Whatever happened to President Obama's pledge to follow the science? Democrats prefer to cite a few outlier studies known to be methodologically flawed.

State lawmakers are also at fault. At least 10 states have raised their minimum wages above the federal level in the last decade, largely in response to union lobbying and in the name of helping the working poor. Four states with among the highest wage rates are California, Massachusetts, Michigan and New York. Studies have shown in each case that their wage policies killed jobs for teens. The Massachusetts teen employment rate sank by one-third when the minimum wage rose by 88% between 1995 and 2008.

According to new numbers from the Labor Department, in 2008 only 1.1% of Americans who work 40 hours a week or more even earned the minimum wage. In other words, 98.9% of 40-hour-a-week workers earn more than the minimum. The data also show that teenagers are five times more likely to earn the minimum wage than adults. Minimum wage jobs are nearly all first-time or part-time jobs, and an estimated two of every three minimum wage workers get a pay raise within a year on the job.

Study after study reveals that there are long-term career benefits to working as a teenager and that these benefits go well beyond the pay that these youths receive. A study by researchers at Stanford found that those who do not work as teenagers have lower long-term wages and employability even after 10 years. A high-wage society can only come by making workers more productive, and by destroying starter jobs the minimum wage may reduce long-term earnings.

Another recent study across 17 OECD nations, also by Messrs. Neumark and Wascher, found a highly negative association between higher minimum wages and youth employment rates. But it also concluded that having a starter wage, well below the minimum, counteracts much of this negative jobs impact. If Congress won't suspend its recent minimum wage hike, it should at least create a teenage wage of $4 or $5 an hour to help put hundreds of thousands of teens back to work. White House chief economic adviser Larry Summers has endorsed this in the past. Without this change, expect the teen unemployment to remain very high for a long time.

The wonder of it all is that liberals still call "progressive" a policy that has driven the wages of hundreds of thousands of the lowest skilled workers down to $0.00.

from the Wall Street Journal, 2009-Sep-17, p.A22:

A Gift for Labor
Union 'card check' isn't dead yet, and it may be getting worse.

The AFL-CIO crowned a new king yesterday at the labor federation's convention in Pittsburgh. Now some Democrats are rushing to pay the union's new president, Rich Trumka, tribute by reviving Big Labor's top legislative priority, the "card check" legislation.

First in line: Senator Arlen Specter (version 2009, Democrat), who turned up in Pittsburgh to tout new wrapping for the same old bill that got waylaid in the face of opposition from moderate Democrats and the GOP. When Mr. Specter was a Republican, lo, these many weeks ago, he opposed rigging the rules to ease unionization and reverse a decades-long free fall in membership. Now, as a Democrat, he needs labor to keep his seat in next year's Pennsylvania Senate Democratic primary. Mr. Specter is nothing if not adaptable, and he gave the misnamed Employee Free Choice Act enthusiastic support and claimed a breakthrough to pass the bill "before the year is up."

Mr. Specter's revised bill would accomplish the same goals as the old "card check" by slightly different means. He said a new proposal negotiated among a small group of Senators, yet to be unveiled, drops the provision to end the secret-ballot in union elections. In place of this proposal to automatically unionize if more than half the employees sign union cards, they are proposing an election within a week or so of a minority of employees petitioning for a union. This shotgun vote is intended to deny employees the kind of educated choice that comes with a proper discussion of the merits of unionization informed by both management and labor.

The new old "card check," according to Mr. Specter, also gives unions unprecedented access to the workplace and meetings between employers and employees before a vote to unionize. Last we checked the Constitution, even in the age of Obama private companies haven't signed away their property rights.

An equally problematic binding arbitration provision stays in. This idea would let a federal arbitrator impose a contract if the employer and a newly organized union aren't able to agree within three months. In other words, a government-sponsored agent would decide what salaries and benefits management will have to pay its employees. Throw in the expanded access to company property, and this so-called compromise bill may be worse than the original.

Mr. Specter claimed that moderate Democrats who have opposed "card check" such as Nebraska's Ben Nelson and Arkansas's Blanche Lincoln would now vote to stop what is certain to be a Republican filibuster attempt. Rather than take his word for it, we checked with them. Senator Lincoln's office said "her position has not changed." Mr. Nelson's office says he "doesn't have much to say" until a bill actually comes before the Senate.

Sixty votes are needed to make this long-held dream of the labor chieftans come true. That won't be easy. But Mr. Specter's latest flip and President Obama's repeated support for "card check" are noteworthy reminders that after health-care reform, the Democrats have other big outstanding debts to their left, which they intend to settle.

from the Wall Street Journal, 2009-Oct-2, by Paul Ingrassia:

Saturn Couldn't Escape GM's Dysfunctional Orbit
Union leaders hated the flexible work rules and eventually got rid of them.

General Motors and the United Auto Workers union have waged war against each other—sometimes hot, sometimes cold—for most of the past 80 years. One of the few things on which they collaborated, sadly, was undermining Saturn, which began as the boldest effort to reform the dysfunctional dynamics of their relationship.

On Wednesday, what appears to be Saturn's death knell sounded when Roger Penske, the legendary automotive entrepreneur, abandoned his plan to buy Saturn from GM and run it as an independent car company. Mr. Penske's plan was a long shot anyway. He had intended to make Saturn a distributor and retailer only, procuring the vehicles from auto makers—initially GM and then France's Renault—on a contract basis.

One inherent problem was that the companies making cars for Saturn also would be its competitors, if only indirectly in Renault's case. (Renault controls Nissan, which competes head-to-head with Saturn in the U.S.) So it was little surprise when Mr. Penske couldn't reach acceptable terms with Renault and pulled out of the deal. Barring a miracle, GM now will "move quickly to wind down Saturn," as GM Treasurer Walter Borst said Thursday at an analysts' conference in Scottsdale, Ariz., and many dealers likely will shut their doors soon.

But make no mistake: The failure here isn't Mr. Penske's. Saturn was killed by its creators, GM and the UAW. The company starved Saturn for new products, and the union waged war against Saturn's labor reforms to keep them from spreading to other GM factories.

The story began on Jan. 8, 1985, when GM announced Saturn at a press conference in Detroit. It would be GM's first new brand in 70 years and operate as a separate subsidiary, with its own labor contract, to develop a small car fully competitive with the imports. Chairman Roger B. Smith assigned Saturn a historic mission: to "affirm that American ingenuity, American technology and American productivity can once again be the model and the inspiration for the rest of the world."

Those stirring words were echoed seven months later in a Memorandum of Understanding between GM and the UAW: "We believe that all people want to be involved in decisions that affect them, care about their jobs . . . and want to share in the success of their efforts." Saturn became not just a company but a cause. Its factory would be in Spring Hill, Tenn., a bucolic town 45 miles south of Nashville and hundreds of miles from the hidebound headquarters of GM and the UAW in Detroit.

Saturn's chief UAW apostle was Donald Ephlin, the visionary head of the union's GM department who passed away in 2000. Ephlin strongly believed that Detroit's auto makers and the UAW had to change from confrontation to collaboration.

Thus the Saturn contract, built on the Memorandum of Understanding, eliminated most of the work rules that strictly limit the tasks UAW members can perform. Workers would be called "technicians" and get just 80% of standard UAW wages but would share in Saturn's profits, allowing them to earn more if Saturn succeeded. Most Saturn executives and managers would be assigned a UAW counterpart, and the two would share in key decisions.

The latter provision was overly idealistic, but certainly an improvement over constant and costly combat. Nonetheless, Saturn's labor innovations were attacked by UAW traditionalists, who coined the term "Ephlinism" to describe Saturn's heresies. Ephlin retired, on the defensive, in 1989. Mr. Smith retired a year later, his reputation besmirched by GM's chronic underperformance, just before Saturn built its first cars.

The cars were pretty ordinary, causing Honda engineers to scoff when they disassembled one. But the engineers couldn't see Saturn's emotional appeal, reinforced with advertising about labor-management cooperation amid the down-home values of Spring Hill. One ad featured a technician kneeling next to his Irish setter and saying: "What's happened here is something I'd like my grandchildren to know about."

Saturn dealers were awarded broad area franchises, freeing them to focus on customers instead of competing with dealers down the block. Customers loved the no-haggle pricing and being cheered by employees when they drove their new car off the lot. More than 40,000 Saturn owners attended the June 1994 Saturn Homecoming in Spring Hill, where they were treated to factory tours, country-music concerts, and picnics with the workers who built their cars.

In June 1993, Vice President Al Gore visited Spring Hill and said he wanted to "Saturnize" the federal government, whatever that meant. The Age of Aquarius was meeting the automotive assembly line. Saturn sales peaked at 286,000 cars in 1995.

But that year saw another, more menacing development. The UAW elected as its new president Stephen P. Yokich, a militant firebrand with an explosive temper who hated Saturn. Before his death in 2002, he opposed profit-sharing, the elimination of work rules, and the flexible factory shifts that improved Saturn's efficiency.

Yokich convinced GM to assign a new Saturn model to a factory in Delaware instead of Spring Hill. He worked to unseat Mike Bennett, an Ephlin protégé, as president of UAW Local 1853 at Saturn. Mr. Bennett was defeated for re-election in 1999.

Meanwhile, Saturn wasn't faring much better at the hands of management. After GM almost went bankrupt in 1992, the cash-strapped company didn't give Saturn money to update its cars. The decision was understandable but unfortunate. By the time new models finally arrived, Saturn's sales had fallen dramatically and Saturn didn't seem so special any more.

In 2003 the Spring Hill technicians—now workers again—voted to scrap Saturn's special agreement and return to the UAW's standard contract with GM. Spring Hill became a regular GM factory after the last Saturn was built there two years ago. Ironically, the town of Spring Hill still has a street called Stephen P. Yokich Parkway.

GM is cagey about whether Saturn ever was profitable; the answer likely depends on accounting allocations for corporate overhead and the like. But in recent years Saturn, like the rest of GM, clearly was losing money. Without a special labor contract or any unique vehicles, Saturn was a clear candidate for closure when President Barack Obama's automotive team forced GM to downsize in the government bailout.

Mr. Penske then attempted to save Saturn by buying the brand and creating an automotive Costco that would procure cars from various manufacturers. Saturn always had portrayed itself as "a different kind of company," but this was too different to succeed.

Last week I went to Tennessee to speak to the Republican Women's Club of Williamson County, home of the former Saturn factory. Some of the attendees were former Saturn workers, good people who really tried to create something different at Spring Hill but were let down by their company and their union. Perhaps the new GM and the UAW will forge a different relationship in the future. Meanwhile, the Saturn workers' sense of loss is expressed poignantly by Mike Bennett, their former union leader, who says, "I wake up at night sick, thinking about all the things that might have been."

Mr. Ingrassia is a Pulitzer Prize-winning former Detroit bureau chief of this newspaper. His book "Crash Course: the American Automobile Industry's Road from Glory to Disaster," will be published by Random House in January.

from the Wall Street Journal, 2009-Sep-12:

A Protectionist Wave
Obama invites a rush of similar claims with his tariffs on Chinese tires.

The White House leaked word late Friday evening that the U.S. will impose a 35% tariff on imported Chinese tires used by millions of low-income Americans. We wonder if President Obama understands the political forces he's unleashing with this blatant protectionism.

Mr. Obama is setting a precedent in the tire case because he is applying a previously unused part of the trade law known as Section 421. This allows U.S. industries or unions to seek protection from "surges" of Chinese imports, with a lower burden of proof than normal antidumping or countervailing duty cases. President Bush nixed the four Section 421 petitions that reached his desk, citing the national economic interest. Domestic lobbies had lobbied Mr. Obama hard to reverse that pattern and set a new protectionist precedent.

Eleven Senators, including Sherrod Brown (D., Ohio) and Debbie Stabenow (D., Mich.), sent a letter to President Obama in July advocating the tariff on Chinese tires. "We firmly believe that providing this specific measure of relief would send a powerful message to the American people that you intend to keep your promise to enforce trade laws fully," they wrote.

Then there are companies that face competition from lower-cost Chinese imports and want to push their antitrade agenda forward. Take the Committee to Support U.S. Trade Laws, which lobbed a pro-tariff letter into the White House this month. The umbrella group includes the American Furniture Manufacturers Committee for Legal Trade; the California Fresh Garlic Producers Association; the U.S. Beekeepers; the Florida Fruit & Vegetable Association; and the Flower Growers of Puget Sound. "This case is being watched closely to see whether Section 421 is an effective law or a dead issue,"committee executive director David A. Hartquist wrote to Mr. Obama.

This threat will now be realized as other industries pursue the 421 solution to reducing competition. Some of the product categories that have seen import surges include shoes, lawn mowers, television monitors, hearing aids, musical instruments like keyboards and guitars, women's underwear, blouses and t-shirts, according to Greg Rushford, editor of a newsletter on trade policy. Oh, and trousers, women's knit shirts and bras, according to Cass Johnson, president of the National Council of Textile Organizations—another lobby that must be gleeful that Mr. Obama has unleashed Section 421.

As a candidate, Mr. Obama courted union support, and the United Steelworkers filed the tire case anticipating he would pay them back. Some in the business and policy communities thought Mr. Obama didn't really mean it, and that like Bill Clinton he would stand for the national economic interest in open trade once he became President. Mark that down as another misjudgment. In his first big trade test in the White House, Mr. Obama has allied himself with the protectionists, and the world will see his political surrender and rush to exploit it.

from the Wall Street Journal Asia, 2009-Sep-24:

The Obama Tire Tax
What U.S. consumers will pay to appease his union base.

Remember that 35% tariff President Obama imposed on tires imported from China this month? American drivers will sure find it hard to forget, as the higher costs start trickling down to U.S. consumers.

Since the tariff announcement on September 11, U.S. tire wholesalers have been warning that their sales prices to retailers will increase by about 15% on average. In some cases, the hikes are as high as 28%, according to industry sources. The only reason prices haven't risen by the full 35% tariff rate yet is that wholesalers still have some pre-tariff inventory stocks in their warehouses.

Eventually, this Obama tire tax will squeeze consumers hard because wholesalers and retailers have margins too thin to absorb much of the impact themselves. It may take a few months, Bill Trimarco of Hercules Tire in Ohio told us, but the price hikes are coming.

Low-income Americans will bear the brunt of the pain because Chinese tiremakers sell the cheapest tires, retailing for about $50 a piece at the lowest. An extra $15 for two replacement tires or $30 for four—and up to $70 more once the full tariff cost hits the market—might not sound like much. But for Americans scraping by on tight budgets, or who have lost their jobs in the recession, that amounts to school supplies for the kids, some new clothes or a tank or two of gasoline. Or consumers can just take the safety risk of driving a little longer on worn-out tires before replacing them.

Mr. Obama's political sop to the United Steelworkers union that requested this tire protectionism will be expensive for the economy overall, too. Rutgers economist Thomas J. Prusa, who had estimated the potential impacts of tariffs at the request of tire importers, calculates that the 35% tariff will cost the economy about 20,000 jobs in the tire distribution and retail sector while "saving" only 1,000 jobs at domestic manufacturing plants. U.S. consumers will pay $330,000 in higher tire prices for each of those 1,000 jobs.

Perhaps Mr. Obama thought setting the rate at 35% would be a good compromise since the International Trade Commission had proposed a tariff of 55%. The reality is that industry margins are so thin and consumer budgets are so tight that even a 35% tariff will hurt the economy. Mr. Obama's first big trade-policy call is turning out to be a very expensive mistake.

from the Wall Street Journal, 2009-Sep-17, p.A23, by John F. Cogan, John B. Taylor and Volker Wieland:

The Stimulus Didn't Work
The data show government transfers and rebates have not increased consumption at all.

Is the American Recovery and Reinvestment Act of 2009 working? At the time of the act's passage last February, this question was hotly debated. Administration economists cited Keynesian models that predicted that the $787 billion stimulus package would increase GDP by enough to create 3.6 million jobs. Our own research showed that more modern macroeconomic models predicted only one-sixth of that GDP impact. Estimates by economist Robert Barro of Harvard predicted the impact would not be significantly different from zero.

Now, six months after the act's passage, we no longer have to rely solely on the predictions of models. We can look and see what actually happened.

Consider first the part of the package that consists of government transfers and rebates. These include one-time payments of $250 to eligible individuals receiving Social Security, Supplemental Security Income, veterans benefits or railroad retirement benefits and temporary reductions in income-tax withholding for a refundable tax credit of up to $400 for individuals and $800 for families with incomes below certain thresholds. These payments, which began in March of this year, were intended to increase consumption that would help jump-start the economy. Now that a good fraction of these actions have taken place, we can assess their impact.

The nearby chart reviews income and consumption through July, the latest month this data is available for the U.S. economy as a whole.

Consider first the part of the chart pertaining to the spring of this year and observe that disposable personal income (DPI) — the total amount of income people have left to spend after they pay taxes and receive transfers from the government — jumped. The increase is due to the transfer and rebate payments in the 2009 stimulus package. However, as the chart also shows, there was no noticeable impact on personal consumption expenditures. Because the boost to income is temporary, at best only a very small fraction was consumed.

This is exactly what one would expect from "permanent income" or "life-cycle" theories of consumption, which argue that temporary changes in income have little effect on consumption. These theories were developed by Milton Friedman and Franco Modigliani 50 years ago, and have been empirically tested many times. They are much more accurate than simple Keynesian theories of consumption, so the lack of an impact should not be surprising.

Indeed, one need not have looked any further than the Bush administration's Economic Stimulus Act of 2008 to find plenty of evidence that temporary payments of this kind would not jump-start consumption. That package made one-time payments and rebates to people in the spring of 2008, but, as the chart shows, failed to stimulate consumption as had been hoped. Some argued that other factors such as high oil and gasoline prices caused consumption to fall during this period and that consumption would have been even lower without the stimulus, but no significant impact of these rebates is found even after controlling for oil prices.

Consider next the government-spending part of the stimulus package. The Obama administration points to the sharp reduction in the decline in real GDP from the first to the second quarter of 2009 as evidence that the package is working. Economic growth was minus 6.4% in the first quarter and minus 1% in the second quarter, so the implied improvement of 5.4 percentage points is indeed big. But how much of that improved growth rate can be attributed to higher government spending due to the stimulus? If we rely on predictions of models, again we see disagreement and debate. According to our research with modern macroeconomic models, the increase in government spending would add less than a percentage point, a relatively small portion. The model predictions cited by the administration's economists suggest a much larger portion: two to three percentage points. Prof. Barro's model predicts zero.

So let's look at the data on the contributions of government spending and other components of GDP to the 5.4 percentage-point improvement. By far the largest positive contributor to the improvement was investment which went from minus 9% to minus 3.2%, an improvement of 5.8% and more than enough to explain the improved GDP growth. Investment by private business firms in plant, equipment and inventories, rather than residential investment, were the major contributors to the investment improvement. In contrast, consumption was a negative contributor to the change in GDP growth, because consumption growth declined following the passage of the stimulus package.

One is hard put to see what specific items in the stimulus act could have arrested the decline in business investment by such a magnitude. When one looks at monthly investment indicators such as new orders for nondefense capital goods one sees a flattening out starting early in the first quarter of 2009, well before the package went into operation. The free fall of investment orders caused by the financial panic last fall stabilized substantially by January, and investment has remained relatively stable since then. This created the residue of a very large negative growth rate from the fourth quarter of 2008 to the first quarter of 2009, and then moderation from the first quarter to the second of 2009. There is no plausible role for the fiscal stimulus here.

Direct evidence of an impact by government spending can be found in 1.8 of the 5.4 percentage-point improvement from the first to second quarter of this year. However, more than half of this contribution was due to defense spending that was not part of the stimulus package. Of the entire $787 billion stimulus package, only $4.5 billion went to federal purchases and $17.7 billion to state and local purchases in the second quarter. The growth improvement in the second quarter must have been largely due to factors other than the stimulus package.

Incoming data will reveal more in coming months, but the data available so far tell us that the government transfers and rebates have not stimulated consumption at all, and that the resilience of the private sector following the fall 2008 panic — not the fiscal stimulus program — deserves the lion's share of the credit for the impressive growth improvement from the first to the second quarter. As the economic recovery takes hold, it is important to continue assessing the role played by the stimulus package and other factors. These assessments can be a valuable guide to future policy makers in designing effective policy responses to economic downturns.

Mr. Cogan, a senior fellow at the Hoover Institution, was deputy director of the Office of Management and Budget under President Ronald Reagan. Mr. Taylor, an economics professor at Stanford and a Hoover senior fellow, is the author of "Getting Off Track: How Government Actions and Interventions Caused, Prolonged and Worsened the Financial Crisis" (Hoover Press, 2009). Mr. Wieland is a professor of monetary theory at Goethe University in Frankfurt, Germany.

from the Wall Street Journal, 1979-Apr-18, republished 2003-Dec-15, by Robert L. Bartley:

Down With Big Business

(Editor's note: This editorial appeared in The Wall Street Journal, April 18, 1979. It was written by Robert L. Bartley, who died last week, and was among the works that won him the 1980 Pulitzer Prize for editorial writing.)

Our suspicion of big business has been soaring ever since the great catalytic converter debate, in which General Motors and Ed Muskie ganged up on Chrysler. Back in 1973, Chrysler was seeking a delay in auto emission standards to avert the catalyst. Its arguments had Senator Muskie backed into a corner, but GM had already bought its platinum and tooled up to sell catalysts. So GM came out for "clean air" and gave us the catalyst.

As a result: Consumers have had to shell out millions more for their autos, and the auto marketplace has become increasingly difficult. Cars now get rid of extra hydrocarbons by burning them in a catalyst, where they become waste heat. The development of auto engines has been diverted away from then-promising lines, such as the stratified-charge engine, which would have burned "excess" hydrocarbons in the cylinder, where they become energy. Cars now need unleaded gasoline, which takes more Arab crude to make, and which was hard to find last Sunday. The hydrocarbon emission standards have been met, but whether the air is cleaner depends on whether you like the sulphur mists catalysts produce.

GM prospers. Chrysler is on the ropes.

All this is brought to mind by General Motors' current corporate-citizenship campaign. GM is telling us how to lick inflation. "A voluntary program will work, if everyone volunteers," GM Chairman Thomas A. Murphy has written chief executives of the rest of the Fortune 500 to urge compliance with President Carter's wage-price guidelines. And GM has taken out newspaper ads to exhort the populace and brag about its own "commitment" to mother, flag and the Council on Wage and Price Stability.

Now, this may seem like a strange time to start campaigning for the wage-price control program. It's one thing to board the Titanic as it leaves port, but quite another to come on board when the water is coming over the gunwales. In its ads, GM was thoughtful enough to clear up this mystery quickly, etching in boldface the following words:

"We have written to our suppliers, informing them of GM's commitment and asking them all to make the same commitment."

So this time, GM and Jimmy Carter are ganging up on the XYZ Bumperlight Lens Co. Five years from now, with the help of Mr. Carter, Mr. Kahn and so on, XYZ Bumperlight Lens will be the XYZ plant of the lens section of the light division of the bumper arm of the manufacturing subsidiary of guess who?

These insights are gradually helping us to understand why the very biggest businesses are such unreliable allies in the fight to preserve a free enterprise economy. We're sure, of course, that Mr. Murphy thinks of himself as a capitalist, and can give as stirring an "economic education" speech as anyone around. We're sure that it has never even occurred to him that since GM has a bigger cushion than its suppliers, it can grind them down if the economy is locked up in price standards. We're sure that he and other GM officers have persuaded themselves that the government is waging fiscal and monetary restraint, and sincerely believe that wage-price voluntarism will help it work faster.

For all that, self-interest finds a way to get itself expressed, and the business giants have rather equivocal interests in free enterprise. They always have the option of doing everything left-handed and backwards if that's what the government wants; indeed, that kind of regulation gives them an advantage over less durable competitors. A lot of little guys can make nuisances of themselves if they start resigning from giant research, inventing things, and raising money to form their own companies that compete with the gidget section of the widget division. And GM and du Pont and Exxon and GE are so big even the government has to come to terms with them, or so at least they can believe. And what could be so bad about becoming a public utility and being allowed 8% or so on whatever you invest; it works for Ma Bell?

This is of course a caricature of big corporations, their executives and their motives. But it is a caricature drawn to highlight an impulse that we do think accounts for otherwise inexplicable parts of their attitudes toward free enterprise. Historically capitalist economies have prospered through competition, innovation and particularly a sensitive price mechanism transmitting unimaginably efficient signals for less production here and more investment there. If you freeze the system you will lose its thrust toward progress. But in many ways GM's life will be easier. So don't look to big business for unequivocal defenses of capitalism. We guess that's up to the folks at XYZ Bumperlight Lens.

from the Wall Street Journal, 2009-Oct-1, by Matt Miller:

A Real Employee Free Choice Act
Big business is fighting the most important health-care reform.

As health reform legislation hurtles toward its finale, corporate America has rushed to the barricades to make sure that big business remains at the heart of the welfare state. The Business Roundtable, the Chamber of Commerce and the National Association of Manufacturers are united in their belief that Sen. Ron Wyden's (D., Ore.) "free choice amendment" must be stopped.

Mr. Wyden's measure, which is being offered as an amendment to the Baucus bill in the Senate Finance Committee, would come into play if employers failed to offer their workers meaningful choice of affordable plans. In that case, employees would be allowed to turn the cash employers currently spend on their health benefits into vouchers with which they could buy coverage from newly created insurance exchanges.

Big business thinks that giving employees this choice would be a calamity. To which one can only ask: Have these business lobbies lost their minds?

When the post-mortems on the health-care reform debate are written, the biggest mystery will be why big business fought so hard to stay in the health-care business even as soaring health costs surpassed corporate profits and diverted executive time better devoted to actually running companies.

America's employer-based health-care system may have made sense 50 years ago, when care was cheap, U.S. business faced little global competition, and fending off socialism was a Cold War priority. Circumstances have changed radically since that time. Yet corporate America—egged on by human resources executives threatened by change—remains caught in a time warp.

It's bad enough that business didn't do the smart thing up front and urge President Barack Obama to move the nation beyond employer-based care. That was major lost opportunity No. 1.

But on what possible theory does big business now assert that the 175 million Americans who get coverage on the job deserve no new choices? Most firms offer just one insurance plan, or narrow set of plans, to their workers. Why shouldn't these Americans also benefit from the myriad options that will become available from newly established competitive insurance exchanges?

The language used in a letter sent Tuesday to the Senate Finance Committee from something called the "National Coalition on Benefits"—a body controlled by corporate HR execs—reveals the confusion and paternalism still permeating the executive suite when it comes to the employer's role.

Mr. Wyden's proposal, the coalition asserts, would "fundamentally frustrate employers' attempts to administer integrated health improvement strategies." As a factual matter, this is incorrect. But why should "health improvement strategies" be the job of American businesses? Sounds more like a job for American doctors, in conjunction with their patients.

The status quo crowd also writes that Mr. Wyden's measure "would likely harm employer-employee relations because most employees have a longstanding expectation that their employer will be their primary source for health coverage." But employees already chafe at the shrinking coverage now available on the job. And who wouldn't want more options?

It's clear to anyone who looks that the edifice of employer-based coverage is crumbling. A recent survey sponsored by the Committee for Economic Development, a business-led think tank, showed that 62% of senior executives think the system is unsustainable. While the under-65 population has grown by 25 million since 1999, the number of people who get health care from their employers has declined. Numerous CEOs have told me privately that they'd just as soon get out of the benefits business altogether, which makes one wonder who the National Benefits Coalition really represents.

Mr. Wyden's measure would strike a modest but meaningful blow for modernity by making it possible, for the first time, for American workers to access group coverage outside their jobs. Once the infrastructure of these insurance exchanges is established, more firms will offer more people more choices over time. If business is smart, it will then strike a grand bargain in which government picks up the costs of the health-care voucher in exchange for business lending its support to the modest consumption tax needed to replace the corporate money being withdrawn from the system.

If this plays out as it should, the result will not be the single-payer system of Britain or Canada, but an American version of the Swiss or Dutch model of universal coverage in which private insurers and providers organize and deliver care. A decade or so from now, finally freed from this antiquated health-care system, everyone in corporate America should be happy.

Except for HR executives at big companies, who will have surrendered the commanding heights of the welfare state. So here's a thought, Sen. Wyden: Sweeten your amendment with a generous buyout plan for HR chiefs at the Fortune 500. And watch opposition to more freedom and choice for millions of Americans melt away.

Mr. Miller, a management consultant, is the author of "The Tyranny of Dead Ideas: Letting Go of The Old Ways of Thinking To Unleash a New Prosperity," (Times Books, 2009).

from Life and Health Insurance News, 2009-Sep-18:

Employers Say `No' To Extra Costs

Many employers say they will not absorb any additional costs resulting from Federal health care reform, according to a new survey.

The survey sampled views of 433 human resource and benefit executives from midsize and large U.S. organizations. It was conducted by Towers Perrin, Stamford, Conn., in July.

To avoid absorbing additional costs resulting from reform, employers say they would cut back on benefits, raise prices for customers or reduce head count.

The survey also found 89% plan to reexamine their health benefit strategies for active employees in response to the passage of health care reform legislation. (At the time of the survey, 94% of employees at the surveyed companies were eligible to receive health benefits, and 81% were enrolled in company-sponsored benefit programs, says Towers Perrin.

Employers also said they do not expect that reform as currently proposed would address some of the fundamental sources of health care costs. For example, 65% believe that health care reform will have little or no impact on consumer behaviors, according to Towers Perrin.

Cost containment was listed as the most important health care reform goal for 90% of the employers, observes Dave Guilmette, managing director of the Towers Perrin Health and Welfare practice.

Many large employers, however, “feel that current reform proposals are focused on other health care issues—such as expanding coverage and reforming certain insurance practices—and [the employers] feel they have already addressed these issues within their own workforces,” he said.

As for health care proposals currently on the table, 53% of respondents said they believe that research on effectiveness of alternative treatments would have a positive impact on their business by influencing the quality of care over time. And 44% believe that reforming the health insurance market to ensure guaranteed access to coverage regardless of health status will have a positive impact.

However, 47% believe that an employer “pay or play” mandate would have a negative impact on business, Towers Perrin says.

“The way employers would respond to reform proposals that raise or lower their costs is one of our most telling findings—one that could conceivably impact economic recovery,” says Guilmette. “With companies struggling to manage rapidly escalating health care costs and reclaim profits, only 11% of companies would agree to absorb increased health care costs by reducing their profits. The overwhelming majority of companies would respond to higher costs by reducing the benefits their employees receive.”

Other findings of the survey:

—61% say they would stand by their commitments to employee wellness and health promotion programs, even if they no longer offered medical benefits (under the “pay” option of a pay-or-play mandate, for example).

—Among employers based in Massachusetts (which has a pay-or-play mandate on employers and a coverage mandate on individuals), most say they have seen little or no change in employee or employer health care costs or access to or quality of care, but over 66% report their administrative burdens have increased.

Employers surveyed expect they would respond to a pay-or-play mandate in these ways: 37% would provide company-sponsored health coverage that substantially exceeds the standard; 29% would discontinue company-sponsored health coverage and pay the assessment if the per-employee costs of payments to the federal government were substantially lower than their current costs; and 26% would provide company-sponsored health coverage at the level of the minimum standard required.

from the Wall Street Journal, 2009-Sep-25, p.B6, by Josh Mitchell and Stephen Power:

Gore-Backed Car Firm Gets Large U.S. Loan

WASHINGTON -- A tiny car company backed by former Vice President Al Gore has just gotten a $529 million U.S. government loan to help build a hybrid sports car in Finland that will sell for about $89,000.

The award this week to California startup Fisker Automotive Inc. follows a $465 million government loan to Tesla Motors Inc., purveyors of a $109,000 British-built electric Roadster. Tesla is a California startup focusing on all-electric vehicles, with a number of celebrity endorsements that is backed by investors that have contributed to Democratic campaigns.

The awards to Fisker and Tesla have prompted concern from companies that have had their bids for loans rejected, and criticism from groups that question why vehicles aimed at the wealthiest customers are getting loans subsidized by taxpayers.

"This is not for average Americans," said Leslie Paige, a spokeswoman for Citizens Against Government Waste, an anti-tax group in Washington. "This is for people to put something in their driveway that is a conversation piece. It's status symbol thing."

DOE officials spent months working with Fisker on its application, touring its Irvine, Calif., and Pontiac, Mich., facilities and test-driving prototypes.

Matt Rogers, who oversees the department's loan programs as a senior adviser to Energy Secretary Steven Chu, said Fisker was awarded the loan after a "detailed technical review" that concluded the company could eventually deliver a highly fuel-efficient hybrid car to a mass audience. Fisker said most of its DOE loan will be used to finance U.S. production of a $40,000 family sedan that has yet to be designed.

"It's the ability to drive significant change in fuel economy across a large market segment" that swayed the department to approve the Fisker loan, Mr. Rogers said. "We got quite excited."

Henrik Fisker, who designed cars for BMW, Aston Martin and Tesla before starting his Fisker Automotive in 2007, said his goal is to build the first plug-in electric hybrids that won't sacrifice the luxury, performance and looks of traditional gas-powered luxury cars.

The Karma will target an exclusive audience -- Gore was one of the first to sign up for one. Mr. Fisker says all new technology starts out being expensive. He pointed to flat-screen televisions that once started at $25,000 but are now affordable to the mass market.

The four-door Karma, powered by a lithium-ion battery, will be able to run solely on electric power for 50 miles, and will achieve an average fuel economy of 100 mpg over the span of a year, the company says. Production is scheduled to start in December, with about 15,000 vehicles a year expected to hit the U.S. market starting next June.

Many of the 1,500 people who have made deposits on the Karma are former BMW and Mercedes owners who want an environmentally friendly car without sacrificing luxury, Mr. Fisker said.

He said he pitched the Karma to Mr. Gore at an event hosted by KPCB last year, and that the former vice president almost immediately submitted a down payment for the car.

Kalee Kreider, a spokeswoman for Mr. Gore, confirmed that the former vice president backs Fisker and purchased a Karma. "He believes that a global shift of the automobile fleet toward electric vehicles, accompanying a shift toward renewable-energy generation, represents an important part of a sensible strategy for solving the climate crisis," she said in a statement.

Fisker's top investors include Kleiner Perkins Caufield & Byers, a veteran Silicon Valley venture-capital firm of which Gore is a partner. Employees of KPCB have donated more than $2.2 million to political campaigns, mostly for Democrats, including President Barack Obama and Hillary Clinton, according to the Center for Responsive Politics, a nonpartisan group that tracks campaign contributions.

Officials at Kleiner Perkins didn't return requests for comment.

Asked whether Mr. Gore had any influence on Fisker's application, the DOE's Rogers said, "None at all."

"This is a very attractive, very across-party-lines kind of vehicle," Mr. Rogers said. "All of the detailed due diligence [was] done by independent review teams."

Other Fisker investors include Eco-Drive (Capital) Partners LLC, an investment consortium, and Qatar Investment Authority, a state-run investor based in Qatar.

Fisker's government loans will come from a $25 billion program established by Congress in 2007 to help auto makers invest in the technology to meet a new congressional mandate to improve fuel efficiency. In June, the DOE awarded the first $8 billion from the program to Ford Motor Co., Nissan Motor Co., and Tesla, which are all developing electric cars.

Some companies that have been turned down for loans from DOE say they did not get much feedback from the department about their applications. O. John Coletti, president of EcoMotors International of Troy, Mich., said his company applied for a $20 million loan from the agency last December, and last month got a one-page rejection letter from the loan program's director, Lachlan Seward. EcoMotors' lead investor is Vinod Khosla, himself a former Kleiner Perkins partner and a longtime campaign contributor to Republicans and Democrats alike.

"I don't have an issue with the winners … it's possible somebody has better ideas than us," Mr. Coletti said. At the same time, he said, "More feedback from DOE on a timely basis would be wonderful. When you're running a business you'd like to know whether you're going to be able to take advantage of this opportunity."

Mr. Coletti's company -- which makes diesel engines and is still waiting to hear from the Department on a separate loan application to help it build a manufacturing facility -- isn't without politically well-connected patrons, either. Its major investor is Vinod Khosla, himself a former Kleiner Perkins partner who has donated to campaigns.

Scott Redmond, CEO of XP Vehicles Inc., said he met with DOE officials twice in Washington after applying for a $40 million loan to develop a $15,000 to $25,000 hybrid, and that both times he was told his application looked good. Since receiving a rejection letter from DOE in August, Redmond said, he has been unable to get a full explanation as to why his request was turned down.

Mr. Rogers said he was not at liberty to discuss individual applications that had been turned down, but said the process has been handled fairly and objectively.

from the Wall Street Journal, 2009-Sep-8, p.A20:

Whoa, Trigger
The latest gimmick to disguise a health-care 'public option.'

President Obama has decided that another oration will rejuvenate his health-care agenda—despite having given 27 speeches entirely on health care, and another 92 in which it figured prominently. We'll see how tomorrow night's Congressional appeal works out, but the important maneuvers are taking place in the cloak rooms, as the White House tries to staple together a majority.

The latest political gimmick is the notion of a "trigger" for the public option: A new government program for the middle class would only come on line if private insurance companies fail to meet certain benchmarks, such as lowering overall health spending or shrinking the number of the uninsured. This is supposed to appeal to Maine Republican Olympia Snowe, who could end up as ObamaCare's 60th Senator, while still appeasing the single-payer left.

Liberals should love the idea because a trigger isn't a substantive concession; it merely ensures that the public option will arrive eventually, instead of immediately. Democrats will goose the tests so that private insurers can't possibly meet them, mainly by imposing new regulations and other costly burdens.

Keep in mind that every version of ObamaCare now under consideration essentially turns all private insurers into subsidiaries of Congress. All coverage will be strictly regulated down to the fine print, and politics will dictate the level of benefits as well as premiums, deductibles and copays. Under the House bill, a "health choices commissioner" will have the final say, no doubt with Democrats Henry Waxman and Pete Stark at his elbow, if not another part of his anatomy.

The same bill also rewrites the 1974 federal law known as Erisa that lets large and mid-sized employers offer insurance with little regulation. Many businesses—including Safeway, General Mills and Marriott—are finding innovative ways to drive down spending, largely with worker incentives to live healthier and be more sensitive to the costs of care. Many Democrats call this discriminatory.

In the individual insurance market, Democrats intend to outlaw medical underwriting: Everyone must be charged the same rate or close to it for the same policies, regardless of health status or history. But this "community rating" tends to price younger and low-risk consumers out of the market. In a 2006 NBER paper, Bradley Herring of John Hopkins and Mark Pauly of the University of Pennsylvania found that community rating results in an overall increase in the uninsured in the individual market, maybe as high as 7.4%. For that reason, 35 states have no community rating at all, and another six allow very wide variations.

The larger reality is that private insurance won't be less expensive until overall health-care costs go down. Democrats may be confused on this point because government, which paid nearly 47 cents of every medical dollar in 2007, simply sets lower prices when Congress feels like it. On average, doctors and hospitals are forced to accept 20% to 30% less for their services in Medicare. That's another reason insurers wouldn't meet a trigger's thresholds, given that providers shift costs onto private under-65 patients to make up government shortfalls.

Conceivably insurers could make their products more affordable by cracking down on treatments and refusing payment more often, much as HMOs held down spending in the 1990s. But both patients and doctors hated this "managed care"—and in any case, Democrats would find a new rationale for the public option in the inevitable voter outcry about private "rationing."

It's true that there was a trigger in the Medicare prescription drug benefit and the world didn't end. But recall the dynamics in 2003: The GOP decided that private stand-alone or Medicare Advantage plans should manage the benefit. As a concession to Democrats, they agreed to trigger a "public option" for drugs—in which the government would have bought them directly, with its typical "negotiating" tactics—if seniors didn't have more than two plans in a given region.

Today, there are 1,689 stand-alone and 2,099 Advantage plans, and on average seniors have 50 to choose from—and costs in 2007 were $26 billion lower than expected. For all its problems, the Medicare drug plan created more choice for seniors and more competition among providers to offer packages that they found most attractive, holding down costs. In short, it created the incentives for multiple "private options."

ObamaCare doesn't bother with incentives, instead merely increasing government command and control of private insurance while making it more expensive in the process. That's why a trigger will inevitably lead to the public option, and also why ObamaCare will make all of our current health problems worse.

from Reuters, 2009-Sep-14, by Peter Henderson and Laura Isensee:

California feud breaks out on clean energy plan

SAN FRANCISCO/LOS ANGELES - California Governor Arnold Schwarzenegger will veto a bill requiring the state to get a third of its electricity from solar, wind and other renewable sources, his staff said on Monday in a fight that shows the difficulties of addressing climate change fast.

Schwarzenegger, whose legacy is largely pinned on driving California's response to global warming, believes the bill passed in the last hours of the legislative session on Friday would make it more difficult to build solar plants in the state and to buy power from neighbors.

California's rank as the largest market for renewable power makes any decision important, and as the U.S. Congress struggles to put together a federal plan, the state's leadership and failures could shape a national plan.

"The industry and regulators are going to wind up spending the next few years wrangling about how to implement the bill as opposed to actually putting steel in the ground," said Public Utilities Commission Deputy Director Nancy Ryan on a call sponsored by the governor.

She said more flexibility was needed, while the bill's main sponsor said curbs on buying power from out of state would ensure jobs were kept in California and give needed weight to the 33 percent goal, which state agencies have already set.

"I'm still holding out hope that the governor will rethink that position" of a veto, State Senator Joe Simitian said in a conference call with reporters that overlapped with Ryan's.

CHALLENGES

While many states debate whether so-called green jobs are real and if the cost of cutting carbon is worth the price, Californians focus mostly on how and how fast to move.

Both sides in California want the state to get 33 percent of its electricity from solar, wind and other alternative energy by 2020.

A study by the state's utilities commission says that is unlikely in almost any circumstances due to the complexity and cost of the project, while a 2010 goal of 20 percent renewables is judged impossible to hit on time.

Schwarzenegger's administration plans a Tuesday executive order for the state's climate change lead, the Air Resources Board, to implement the 33 percent standard, and the agency chief said that could be done by the middle of next year.

But the governor's order could be canceled by the winner of the 2010 ballot race to succeed Schwarzenegger, which Simitian was concerned would limit its effectiveness and raise legal challenges.

Industry lined up on both sides. Solar company First Solar lined up in favor of the bill, as did the California Wind Energy Association.

"If the governor does not sign the bill ... we fear that there will be uncertainty and chaos in this market for years," said the wind group's executive director, Nancy Rader.

"We will completely fail to meet the overall 33 pct renewable portfolio," responded Jan Smutny-Jones, executive director of trade group Independent Energy Producers. "This kind of failure is not an acceptable outcome for those of us in the renewable energy industry."

from the Wall Street Journal, 2009-Jul-26, by Pete du Pont:

Waxman-Markey Deserves to Die
The economy-destroying measure ekes out a House victory.

The fresh news about Washington--the White House and Congress--is that things are not going very well. A new president in full command of public-policy matters is having problems, from health care to taxes to massive federal spending and now to the Waxman-Markey bill, one of the oddest and most far-reaching pieces of legislation advocated by the new administration.

It passed the House a few weeks ago by a 219-212 vote--not much of a margin. Most interesting was the fact that of America's 50 state delegations in the House, 28 voted no and 22 aye, and one quarter of the 219 majority votes came from New York and California. Most of America's states and communities didn't much like the bill.

No wonder, for it would regulate many things--energy, wages, imported goods, corporations, states, cities, buildings and houses, snowmobiles, lawn mowers, light fixtures, candelabra base lamps and many others--while containing broad exemptions for regulation of agribusiness, ethanol and biofuels. The Waxman-Markey bill would be without question the biggest expansion of federal government control over our economy since the 1930s.

The Heritage Foundation concludes it would reduce America's real gross domestic product by $400 billion each year--a cumulative loss of $9.4 trillion by 2035--leading to almost 2.5 million job losses, and raise inflation-adjusted electricity rates by 90%. For a household of four, it would cost on average $2,979 annually and in 2035 the total family cost would be over $4,600 for everything, including power, food, supplies, gasoline and transportation.

Our federal government would have full control over global-warming matters. States would not be permitted to create their own cap-and-trade programs, but could be given emission allowances by the federal government which they could sell to generate funds for clean energy programs.

The federal government would also have control over the carbon permit process. It would give away 85% of the permits to utility companies, refineries and other politically connected businesses, and these no-cost permits could be used by companies to continue to crank out historically high CO2 emission levels, or be sold to other companies for real money.

Next would come the expansion of American protectionism. China and India have declined to participate in global-warming control, so under Waxman-Markey we would be able to impose tariffs on their goods coming into America, something India's environmental minister pointed out to Secretary of State Hillary Clinton a few days ago. The other side of that coin is of course that they could impose tariffs on our exports too. That would hurt American businesses and expand government control of our economy, products and businesses, all in the name of fighting global warming.

Of course we have seen the predecessor of the Waxman-Markey bill in the European Union's cap-and-trade regulation, a political failure as well as an economic one. As Heritage's Ben Lieberman has pointed out, it has not worked in various countries, and is now being opposed by nations that need to burn coal for their electricity generation. As the Washington Post wrote last February, European “emission targets were set too high. Too many pollution allowances were given away to industry. . . . Companies made windfall profits by charging customers more for energy while selling allowances they didn't need. And the Europeans have not had much success in reducing greenhouse gas emissions.”

As Lieberman observes, “To the limited extent European nations have reduced emissions below business-as-usual levels it has hurt their economies. . . . Far from seeing evidence of the bright new green economy some are now promising, we are seeing that cap and trade has contributed to the harm.” Waxman-Markey would operate much the same way with many of the same results in America, and that means central government planning would pull America down to European levels.

So who is in favor of this massive expansion of governmental authority in America? Labor unions of course, for tucked away is the requirement that any project receiving grants from the billions of giveaways in the Waxman-Markey bill would be required to apply Davis-Bacon union wage rules.

Environmentalists like it too, but as climate researcher Chip Knappenberger pointed out in May, neither Henry Waxman nor Ed Markey nor anyone else in Congress is arguing that “the bill is going to save the earth from human-caused climate apocalypse.” It won't, and it “will have virtually no impact on the future course of the earth's climate.” The Waxman-Markey reduction of U.S. greenhouse gas emissions, Mr. Knappenberger concludes, would reduce temperatures by less than one-tenth of a degree Fahrenheit by 2050.

The real purpose of Waxman-Markey is to vastly expand the scope, power and authority of the federal government. Washington would permanently regulate and dictate the performance of the U.S. economy, reward constituencies it favors and punish those it doesn't, and make more and more Americans dependant upon federal largesse.

from the Wall Street Journal, 2009-Sep-3, p.A16:

Terms of 'Endangerment'
The EPA's anti-carbon rule is an admission that CO2 limits hurt the economy.

Cap and trade may be flopping around like a dying fish in Congress, but the Obama Administration isn't about to let the annoyance of democratic consent interfere with its climate ambitions. Almost as bad is the new evidence that it understands how damaging its carbon regulations and taxes will be and is pressing ahead anyway.

The White House is currently reviewing the Environmental Protection Agency's April "endangerment finding" that as a matter of law CO2 is a pollutant that threatens the public's health and must therefore be subject to regulation under the Clean Air Act. Such a rulemaking would let the EPA impose the ossified command-and-control regulatory approach of the 1970s across the entire economy, even if Democrats never get around to passing a cap-and-tax bill.

Yet a curious twist is buried in the EPA's draft rule. The trade press is reporting that the agency thinks it enjoys the discretion to target the new rules only to major industrial sources of carbon emissions, such as power plants, refineries, factories and the like. This so-called "tailoring rule" essentially rewrites clear statutory language of the Clean Air Act by bureaucratic decree.

Because the act was never written to apply to today's climate neuroses, clean-air regulation is based on an extremely low threshold for CO2 emissions that will automatically transfer hundreds of thousands of businesses into the EPA's ambit. The agency is required to regulate sources that emit more than 250 tons of a given air pollutant annually, which may be reasonable for conventional pollutants like NOX or SOX.

But this is a very low limit for ubiquitous CO2, and so would capture schools, hospitals, farms, malls, restaurants, large office buildings and many others. To exempt these sources, the tailoring rule unilaterally boosts the rule for greenhouse gases from 250 tons to 25,000 tons, an increase of two orders of magnitude.

Well, well. In a speech in February, Obama EPA Administrator Lisa Jackson ridiculed those of us who warned about these consequences, saying that it was "a myth" that "EPA will regulate cows, Dunkin' Donuts, Pizza Hut, your lawnmower and baby bottles. . . . Somebody said to me today, 'kittens,' I like that one." Her routine got a big laugh from the like-minded Georgetown audience, but the new draft rule is a flat-out admission that the critics are right.

The endangerment finding was prompted by the 5-4 2006 Supreme Court Mass. v. EPA decision, which relied on an extremely literal interpretation of the Clean Air Act to crowbar CO2 into the law. That decision has been a political windfall for cap-and-tax advocates because it has driven utilities and other businesses to the bargaining table as they've concluded that some carbon limits are inevitable.

Yet the Supreme Court said nothing that would let the EPA simply decide on its own to apply the law to some unfavored business while giving others a pass. And the Clean Air Act is explicit about the 250-ton threshold. Team Obama's real motive in "tailoring" this rule is to limit the immediate economic impact of carbon limits to head off a political backlash.

But even businesses that do get a pass shouldn't rest too easily. The green lobby will quickly sue to force the EPA to enforce fully its own rules and go after all carbon sources. And why not? The Obama Administration is deliberately flouting its own legal claims for political reasons. Its cynical political hope is that if Congress won't impose cap and tax, the courts will do it anyway.

President Obama claims that his "new energy economy" will jump start growth and jobs. The EPA endangerment rule repudiates that claim once and for all. If the green future is going to be so bright, why does the White House want to exempt so many businesses from its glories?

from the Wall Street Journal, 2009-May-20, by John Steele Gordon:

Why Government Can't Run a Business
Politicians need headlines. Executives need profits.

The Obama administration is bent on becoming a major player in -- if not taking over entirely -- America's health-care, automobile and banking industries. Before that happens, it might be a good idea to look at the government's track record in running economic enterprises. It is terrible.

In 1913, for instance, thinking it was being overcharged by the steel companies for armor plate for warships, the federal government decided to build its own plant. It estimated that a plant with a 10,000-ton annual capacity could produce armor plate for only 70% of what the steel companies charged.

When the plant was finally finished, however -- three years after World War I had ended -- it was millions over budget and able to produce armor plate only at twice what the steel companies charged. It produced one batch and then shut down, never to reopen.

Or take Medicare. Other than the source of its premiums, Medicare is no different, economically, than a regular health-insurance company. But unlike, say, UnitedHealthcare, it is a bureaucracy-beclotted nightmare, riven with waste and fraud. Last year the Government Accountability Office estimated that no less than one-third of all Medicare disbursements for durable medical equipment, such as wheelchairs and hospital beds, were improper or fraudulent. Medicare was so lax in its oversight that it was approving orthopedic shoes for amputees.

These examples are not aberrations; they are typical of how governments run enterprises. There are a number of reasons why this is inherently so. Among them are:

1) Governments are run by politicians, not businessmen. Politicians can only make political decisions, not economic ones. They are, after all, first and foremost in the re-election business. Because of the need to be re-elected, politicians are always likely to have a short-term bias. What looks good right now is more important to politicians than long-term consequences even when those consequences can be easily foreseen. The gathering disaster of Social Security has been obvious for years, but politics has prevented needed reforms.

And politicians tend to favor parochial interests over sound economic sense. Consider a thought experiment. There is a national widget crisis and Sen. Wiley Snoot is chairman of the Senate Widget Committee. There are two technologies that are possible solutions to the problem, with Technology A widely thought to be the more promising of the two. But the company that has been developing Technology B is headquartered in Sen. Snoot's state and employs 40,000 workers there. Which technology is Sen. Snoot going to use his vast legislative influence to push?

2) Politicians need headlines. And this means they have a deep need to do something ("Sen. Snoot Moves on Widget Crisis!"), even when doing nothing would be the better option. Markets will always deal efficiently with gluts and shortages, but letting the market work doesn't produce favorable headlines and, indeed, often produces the opposite ("Sen. Snoot Fails to Move on Widget Crisis!").

3) Governments use other people's money. Corporations play with their own money. They are wealth-creating machines in which various people (investors, managers and labor) come together under a defined set of rules in hopes of creating more wealth collectively than they can create separately.

So a labor negotiation in a corporation is a negotiation over how to divide the wealth that is created between stockholders and workers. Each side knows that if they drive too hard a bargain they risk killing the goose that lays golden eggs for both sides. Just ask General Motors and the United Auto Workers.

But when, say, a school board sits down to negotiate with a teachers union or decide how many administrators are needed, the goose is the taxpayer. That's why public-service employees now often have much more generous benefits than their private-sector counterparts. And that's why the New York City public school system had an administrator-to-student ratio 10 times as high as the city's Catholic school system, at least until Mayor Michael Bloomberg (a more than competent businessman before he entered politics) took charge of the system.

4) Government does not tolerate competition. The Obama administration is talking about creating a "public option" that would compete in the health-insurance marketplace with profit-seeking companies. But has a government entity ever competed successfully on a level playing field with private companies? I don't know of one.

5) Government enterprises are almost always monopolies and thus do not face competition at all. But competition is exactly what makes capitalism so successful an economic system. The lack of it has always doomed socialist economies.

When the federal government nationalized the phone system in 1917, justifying it as a wartime measure that would lower costs, it turned it over to the Post Office to run. (The process was called "postalization," a word that should send shivers down the back of any believer in free markets.) But despite the promise of lower prices, practically the first thing the Post Office did when it took over was . . . raise prices.

Cost cutting is alien to the culture of all bureaucracies. Indeed, when cost cutting is inescapable, bureaucracies often make cuts that will produce maximum public inconvenience, generating political pressure to reverse the cuts.

6) Successful corporations are run by benevolent despots. The CEO of a corporation has the power to manage effectively. He decides company policy, organizes the corporate structure, and allocates resources pretty much as he thinks best. The board of directors ordinarily does nothing more than ratify his moves (or, of course, fire him). This allows a company to act quickly when needed.

But American government was designed by the Founding Fathers to be inefficient, and inefficient it most certainly is. The president is the government's CEO, but except for trivial matters he can't do anything without the permission of two separate, very large committees (the House and Senate) whose members have their own political agendas. Government always has many cooks, which is why the government's broth is so often spoiled.

7) Government is regulated by government. When "postalization" of the nation's phone system appeared imminent in 1917, Theodore Vail, the president of AT&T, admitted that his company was, effectively, a monopoly. But he noted that "all monopolies should be regulated. Government ownership would be an unregulated monopoly."

It is government's job to make and enforce the rules that allow a civilized society to flourish. But it has a dismal record of regulating itself. Imagine, for instance, if a corporation, seeking to make its bottom line look better, transferred employee contributions from the company pension fund to its own accounts, replaced the money with general obligation corporate bonds, and called the money it expropriated income. We all know what would happen: The company accountants would refuse to certify the books and management would likely -- and rightly -- end up in jail.

But that is exactly what the federal government (which, unlike corporations, decides how to keep its own books) does with Social Security. In the late 1990s, the government was running what it -- and a largely unquestioning Washington press corps -- called budget "surpluses." But the national debt still increased in every single one of those years because the government was borrowing money to create the "surpluses."

Capitalism isn't perfect. Indeed, to paraphrase Winston Churchill's famous description of democracy, it's the worst economic system except for all the others. But the inescapable fact is that only the profit motive and competition keep enterprises lean, efficient, innovative and customer-oriented.

Mr. Gordon is the author of "An Empire of Wealth: The Epic History of American Economic Power" (HarperCollins, 2004).

from the New York Times, 2009-Sep-21, p.A20, by David D. Kirkpatrick:

Health Bill Could Assist Four Cancer Centers

WASHINGTON — The Nevada Cancer Institute, in Las Vegas, may not have a national reputation as a clinic or a research facility. But it does have the ear of its state's senior senator, Harry Reid, the Democratic leader. And that is why the four-year-old institute could reap a big gain in federal reimbursements as part of the health care overhaul.

After months of noisy public debates over big policy ideas like universal coverage and a public insurance option, the health care legislation is getting down to the fine print. This is the time when powerful members of Congress customarily tuck in their pet projects, either to please their constituencies or as sweeteners to win the votes of lawmakers who may be sitting on the fence.

Senator Blanche Lincoln of Arkansas, a wavering Democrat on the Senate Finance Committee, has proposed expanding Medicare coverage of home infusion therapy, a form of treatment for a variety of purposes that is championed by a medical entrepreneur in her state. Senator Orrin G. Hatch, a Utah Republican on the panel, is seeking a health care tax break for any state that “begins with the letter U.”

But few proposed amendments to the health care bill now before the Finance Committee better exemplify the process than one that would help out the Nevada Cancer Institute. Known in Congressional parlance as a “rifle shot” — the narrowly focused tax or policy equivalent of a spending earmark — the proposal would provide more favorable Medicare payment rates to just a handful of specific medical facilities.

Three of them — a hospital under construction in Cleveland, a venerable center in Detroit and, apparently, another in New Jersey — are among some 40 “comprehensive cancer centers” that have received grants with that designation from the government's National Cancer Institute. The young Nevada institute has not earned that status. It aspires to it, though, its Web site says.

In addition to the favor of the top Senate Democrat, the amendment has the sponsorship of two other members of the party leadership, Senators Debbie Stabenow of Michigan and Robert Menendez of New Jersey, suggesting it is a rifle shot with some velocity. A spokesman for Ms. Stabenow called the provision a “typical rifle shot.”

The identities of the beneficiaries are hard to determine on first reading. The text of the amendment describes its purpose only as ensuring “access to high quality cancer care.”

Then, in classic rifle-shot style, the text masks the names of the beneficiaries by using, in a kind of code, the dates they first received “comprehensive cancer center” grants from the National Cancer Institute. The amendment would cover “certain hospitals” if they “received N.C.I. comprehensive cancer care designation on July 27, 1978, February 17, 1998, June 13, 2000.”

The first date turns out to refer to the Karmanos Cancer Center in Detroit. A government relations official there said the hospital had been seeking such an exemption for about six years through Senator Stabenow and its local congressman, Representative Sander M. Levin. Mr. Levin, a Democratic member of the House Ways and Means Committee, is among the outspoken supporters of a public insurance plan whom the president and Senate leaders may try to woo to a compromise.

The second date refers to University Hospitals in Cleveland, which is building a new cancer hospital and has lobbied hard for such treatment. (One of Ohio's senators, Sherrod Brown, a Democrat, helped write the public insurance option in the Senate health committee's bill.)

The third date is more of a mystery, or perhaps a result of a drafting error. A spokeswoman for the National Cancer Institute could find no record of a hospital that received a “comprehensive cancer center” grant on June 13, 2000. But the date appears intended to refer to the Cancer Institute of New Jersey and an affiliate, Robert Wood Johnson Medical School.

A spokesman for the institute's congressman, Representative Frank Pallone Jr., a Democrat who heads the House Energy and Commerce Subcommittee on Health, said he believed the Stabenow-Menendez amendment covered that cancer center. Mr. Pallone has long tried to win such treatment for the center, to help it compete with regional rivals.

The amendment also covers one more cancer center, in similar code: “designated on June 10, 2003, as the official cancer institute of its state.” That is the date the Nevada Legislature voted to assign that title to the Nevada Cancer Institute, which was then still under construction.

The substance of the amendment would exempt each of the centers from the Medicare “prospective payments” system, which compensates hospitals on the basis of diagnoses rather than treatments they actually provide. The exemptions would add to these centers' income and the cost to taxpayers, although, in an apparent nod to the narrow scope of the amendment, the authors note that it would be unlikely to add much to that cost, because it “is unlikely to affect a large number of hospitals.”

Hospital officials pushing for the exemption argue that the prospective payments system is inadequate to cover the high costs of cancer treatment. They note that about 10 of the 40 comprehensive cancer centers already have exemptions, giving them a competitive advantage.

The Nevada Cancer Institute has spent about $115,000 on federal lobbying fees this year. Jennifer McDonnell, a spokeswoman there, said the institute could not have sought the exemption in any way other than Congressional action, because at present that is the only way for a hospital to attain it.

As for the majority leader, his spokesman, Jim Manley, said only, “Senator Reid has supported efforts in the past to help the Nevada Cancer Institute and will continue to do so in the future.”

from Cato At Liberty, 2009-Aug-24, by Chris Edwards:

Federal Pay Continues Rapid Ascent

The Bureau of Economic Analysis has released its annual data on compensation levels by industry (Tables 6.2D, 6.3D, and 6.6D here). The data show that the pay advantage enjoyed by federal civilian workers over private-sector workers continues to expand.

The George W. Bush years were very lucrative for federal workers. In 2000, the average compensation (wages and benefits) of federal workers was 66 percent higher than the average compensation in the U.S. private sector. The new data show that average federal compensation is now more than double the average in the private sector.

Figure 1 looks at average wages. In 2008, the average wage for 1.9 million federal civilian workers was $79,197, which compared to an average $49,935 for the nation's 108 million private sector workers (measured in full-time equivalents). The figure shows that the federal pay advantage (the gap between the lines) is steadily increasing.

Figure 2 shows that the federal advantage is even more pronounced when worker benefits are included. In 2008, federal worker compensation averaged a remarkable $119,982, which was more than double the private sector average of $59,909.

What is going on here? Members of Congress who have large numbers of federal workers in their districts relentlessly push for expanding federal worker compensation. Also, the Bush administration had little interest in fiscal restraint, and it usually got rolled by the federal unions. The result has been an increasingly overpaid elite of government workers, who are insulated from the economic reality of recessions and from the tough competitive climate of the private sector.

It's time to put a stop to this. Federal wages should be frozen for a period of years, at least until the private-sector economy has recovered and average workers start seeing some wage gains of their own. At the same time, gold-plated federal benefit packages should be scaled back as unaffordable given today's massive budget deficits. There are many qualitative benefits of government work—such as extremely high job security—so taxpayers should not have to pay for such lavish government pay packages.

Update: I respond to some criticisms of this post here.

Update 2: Compensation data for federal workers vs. other industries here.

from the Wall Street Journal, 2009-Sep-4 (web-posted 2009-Sep-3), by Bill Tomson:

U.S. Buys Pork to Support Industry

WASHINGTON -- The Agriculture Department, in a bid to help the ailing pork industry, said Thursday it will buy another $30 million of pork in an effort to boost prices.

The USDA already has pledged to purchase $121 million of pork this year for government food-assistance programs, but producers continue to struggle.

"This action will help mitigate further downward prices, stabilize market conditions, stimulate the economy, and provide high-quality, nutritious food to recipients of USDA's nutrition programs," USDA Secretary Tom Vilsack said.

The National Pork Producers Council has been lobbying the USDA hard this year to buy more pork, but the group was turned away repeatedly.

Mr. Vilsack told lawmakers during a May hearing that the group was asking for an additional $50 million purchase, but the USDA didn't have the money in its budget. The council upped the pressure in August, though, holding a media event to publicize its plea to the Obama administration for "immediate financial assistance."

Falling U.S. consumer demand coupled with strong production over the past two years has resulted in $4.6 billion in losses for producers, according to the group.

Weak pork prices and rising production costs have hurt producers deeply, NPPC spokesman Dave Warner said in a recent interview, "but the real problem is there's just too much pork out there."

About 115 million pigs were slaughtered in the U.S. last year, a continuous increase from 2007 and 2006, Warner said.

from the Reporter of Vacaville, CA, 2009-Aug-16, by George Miller:

What the congressman is trying to say about health care

Americans are struggling with soaring health care costs, decisions about medical care being made by insurance companies and the risk of losing their insurance every day. These problems have plagued our country for decades.

That's why President Obama made health insurance reform the top priority of his administration. And now, Congress is making significant progress on reforms that will benefit every American -- those with insurance and those still without it.

As one of the primary authors of America's Affordable Health Choices Act (HR 3200), a reform bill in the House of Representatives, I want you to know exactly what this bill would mean for you and your community.

Our plan means:

• Lowering health-care costs.

• Stopping insurance companies from denying coverage based on so-called pre-existing conditions.

• Guaranteeing that you will never again be at risk of losing your health insurance if you lose or change a job.

• Protecting your choices of doctors and health plans.

• Ensuring all Americans have access to affordable and quality care.

And we would do all of this without increasing the federal budget deficit.

Under America's Affordable Health Choices Act, consumers also would be guaranteed:

• No denial of insurance for people with pre-existing conditions, such as diabetes, a heart condition, or cancer.

• No dropping of your coverage because you become sick.

• No refusal to renew your coverage if you've paid in full and become ill.

• No more basing job or life decisions on loss of coverage.

• No need to change doctors or plans if you like the coverage you have.

• No co-pays for preventive and wellness care.

• No excessive out-of-pocket expenses, deductibles or co-pays.

• Yearly caps on what you pay.

• No yearly or lifetime cost caps on what insurance companies cover.

In addition, under our bill:

• Employers are required to offer health insurance to employees or pay a fee, and individuals are required to purchase insurance or pay a fee.

• Individuals and small businesses that cannot afford insurance will receive assistance.

• The cost of the bill is paid for through reducing wasteful spending -- more than $500 billion in savings -- and through a surcharge on the wealthiest 1 percent of Americans -- families making more than $380,000 per year in adjusted gross income.

• A strong public health insurance option will be established to help keep insurance companies honest and competitive. This option is just one of your choices among the many private options, and it will help lower costs for everyone.

Our bill offers significant benefits to residents and businesses of my congressional district in Contra Costa and Solano counties. For example, 12,000 small businesses in my district could receive tax credits to help them offer health insurance to their employees; 8,600 seniors would avoid the so-called "doughnut hole" of prescription drug coverage in Medicare Part D; more then 51,000 residents without insurance would have access to it; thousands of families could avoid bankruptcy caused by high medical bills; and area hospitals and providers would receive $148 million per year to cover the cost of uncompensated care.

Those are benefits worth fighting for.

If we fail to enact these reforms, insurance companies will continue to call the shots -- not you and not your doctor. Premiums and out-of-pocket costs will continue to rise faster than inflation. People with insurance will see their costs rise by an average of $1,800 per year, every year. And insured people will remain at risk of losing coverage at any moment or having claims denied because of so-called pre-existing conditions.

There is too much at stake to allow this effort to fall victim to lies and unfounded criticisms, the exact type of attacks that have killed health reform efforts for generations. I encourage everyone interested in learning more about health insurance reform to visit my Web site, www.georgemiller.house.gov.

Today's health insurance system hurts everyone -- except insurance companies. Our reforms will help every American and strengthen our economy.

The author chairs the House Education and Labor Committee and serves as the congressman from California's 7th District, which includes much of Solano County.

[All bolding of text in the above is by me. Imagine you are a health insurer subject to market forces, operating either for profit, or as a not-for-profit co-op, or some other arrangement, but in any case, paying claims out with money paid in as premiums. Now imagine you are constrained as Rep. Miller describes in the text bolded above. Obviously, you are doomed as an insurer, and you leave the marketplace. All your policyholders then lose their insurance coverage. The same fate befalls all other non-government insurers and their policyholders. In the alternative, imagine that the Federal government steps in to backstop incumbent insurers, acting as a universal reinsurer and subsidizer to protect existing insurers from the ruinous impact of the new rules. Either explicitly or effectively, only one insurer remains — the Federal government. Once the Federal government is the only insurer, all health care paid for by health insurance will be subject to the whimsy of the Federal government — the same government whose most prominent personal interactions with the public are carried out by TSA agents. The government will no longer be able to perform its former role as impartial referee enforcing contractual terms on insurers reluctant to pay out on claims. Instead, it will be both counterparty and referee. This is an irredeemable conflict of interest. The result — particularly given the reliably change-averse and risk-averse decisionmaking process endemic to government bureaucracies — would be a relentless and eventually ruinous decline in the abundance, quality, and advancement of medical technology and services, and so of health itself. -AMPP Ed.]

from the Wall Street Journal, 2009-Aug-23:

The Competition Cure
A better idea to make health insurance affordable everywhere.

"Competition" has become a watchword of Team Obama's push for its health-care bill. Specifically, the Administration has defended its public insurance option as a necessary competitive goad to the private health insurance industry.

Health and Human Services Secretary Kathleen Sebelius routinely calls for more choice and competition in health care. In his weekly address this past weekend, President Obama raised the issue directly: "The source of a lot of these fears about government-run health care is confusion over what's called the public option. This is one idea among many to provide more competition and choice, especially in the many places around the country where just one insurer thoroughly dominates the marketplace." We take it this refers to a state in which one insurer holds most of the business.

It is no secret that this page is all for competition in the marketplace. If indeed that's the goal, allow us to suggest a path to it that will be a lot easier than erecting the impossible dream of a public option: Let insurance companies sell health-care policies across state lines.

This excellent idea has been before Congress since at least 2005, when Rep. John Shadegg of Arizona proposed it. It came up again recently in an exchange between Chris Wallace of Fox News Sunday and John Rother, executive vice president of AARP.

Mr. Wallace: "If you really want competition why not remove the restriction which now says that if I live in Washington, D.C. I've got to buy a D.C. health plan, and instead create a national market for health insurance, so that if there's a cheaper plan in Pennsylvania, I could buy in Pennsylvania?"

Mr. Rother: "There are states and localities where health care is much less expensive than others, and if we allow people to buy all their insurance from those places, it will raise the rates there. And it's called risk selection. It's a real problem, given the fact that health care costs can vary substantially from one place to another. So I think while the idea sounds appealing, the consequence would be it would make health care more expensive for those people who live in those low-cost areas."

How did Mr. Rother arrive at this conclusion?

His claim assumes that what makes insurance expensive in places like New Jersey—where the annual cost of an individual plan for a 25-year-old male in 2006 was $5,880—is merely the higher cost of medical services in the Garden State. He sounds an alarm in the rest of the country by suggesting that an individual living in, say, Kentucky—where an annual plan for a 25-year-old male cost less than $1,000 in 2006—would be asked to subsidize plan members living in high-priced states.

That's not how interstate insurance would work. Devon Herrick, a senior fellow with the National Center for Policy Analysis who has written extensively on this subject, notes that insurance companies operating nationally would compete nationally. The reason a Kentucky plan written for an individual from New Jersey would save the New Jerseyan money is that New Jersey is highly regulated, with costly mandated benefits and guaranteed access to insurance.

Affordability would improve if consumers could escape states where each policy is loaded with mandates. "If consumers do not want expensive 'Cadillac' health plans that pay for acupuncture, fertility treatments or hairpieces, they could buy from insurers in a state that does not mandate such benefits," Mr. Herrick has written.

A 2008 publication "Consumer Response to a National Marketplace in Individual Insurance," (Parente et al., University of Minnesota) estimated that if individuals in New Jersey could buy health insurance in a national market, 49% more New Jerseyans in the individual and small-group market would have coverage. Competition among states would produce a more rational regulatory environment in all states.

This doesn't mean sick people who have kept up their coverage but are more difficult to insure would be left out. Congressman Shadegg advocates government funding for high-risk pools, noting that their numbers are tiny. The big benefit would come from a market supply of affordable insurance.

Mr. Rother also said "risk selection" is a problem. But the coverage mandates cause that. As more healthy people opt out of health insurance because it is too expensive relative to what they consume, the pool transforms into a group of older, sicker people. Prices go higher still and more healthy people flee. High-mandate states are in what experts call an "adverse selection death spiral."

Interstate competition made the U.S. one of the world's most efficient, consumer driven markets. But health insurance is a glaring exception. When the competition caucus in Team Obama has to look for Plan B, this is it.

from the Wall Street Journal, 2009-Aug-23:

All Clunkered Out
The dealers may, or may not, get their money.

The Transportation Department is ending its "cash for clunkers" program today, but the deadline shouldn't pass without recording a few economic and political lessons. To wit, the feds can't even give away money very well.

The $3 billion plan is being hailed in Washington as a great success because so many Americans sought to get a $3,500 to $4,500 check financed by other taxpayers in return for trading in their old car. Transportation Secretary Ray LaHood boasts that the program has been wildly popular and provided "a lifeline to the automobile industry, jump starting a major sector of the economy and putting people back to work.'' But it's hardly miraculous that some Americans would be willing to apply for "free" money to do what they probably would have done eventually anyway.

Meanwhile, the program has proven to be an administrative fiasco, as the central planners at Transportation vastly underestimated how many people would apply, assigned too few people to process applications, and had to scramble to borrow workers from the likes of the Federal Aviation Administration to process claims. Auto dealers have nonetheless told of having to front the money to car buyers as they wait and wait for Uncle Sam to get around to paying them.

The Milwaukee Journal Sentinel quoted Brad Schlossmann last week as saying that he had received "no payment whatsoever" on 120 clunker deals at his Milwaukee Honda dealership. Russ Darrow, who owns 15 Wisconsin dealerships, reported having done 400 or so clunker deals and been paid only for a few of them. That story has been repeated from coast to coast. And now that the program is ending in a rush, things could get worse. As buyers sprint to meet the deadline, dealers can't be sure they'll get their paperwork in before the $3 billion runs out. Some dealers, and even the likes of General Motors, could have to write off clunker credits if they aren't reimbursed.

"We do not know how many deals are in the pipeline. We don't know how many dollars are left in the program at this very moment," Ted Smith, president of the Florida Automobile Dealers Association, told the Associated Press this weekend. "That's fundamental to the health of the dealerships that are participating. If you run out of money before you run out of deals, that's not a good situation." Welcome to the vagaries of politically motivated—and subsidized—sales. The politicians care mainly about getting credit for the giveaway, not if some hapless dealers are left holding worthless paper when the money runs out.

As for helping the auto industry, the proof will be whether Mr. LaHood's jump start to sales is sustainable. The idea that a temporary subsidy program will launch the auto industry onto some new, higher sales and production plane defies logic. More likely, the program will merely have concentrated sales over a shorter period, as buyers either postponed purchases once they learned the program was in the works, or accelerated them to meet the subsidy deadline. The program is another bow to the now-reigning Washington policy illusion that the key to prosperity is force-feeding consumer spending, rather than creating incentives for Americans to invest and take risks.

We keep hearing this is a brave new era of public confidence in the virtues of government planning. But the lesson of cash for clunkers is that if this government can't manage a free lunch, it can hardly be trusted to decide whether you can have a hip replacement, and how much it will pay for it.

from the Washington Examiner, 2009-Aug-23, by David Freddoso:

Why the Post Office will never make money (and a lesson for health insurance)

Consider this letter, sent Friday by Sen. Bob Casey, D-Pa. to the Postmaster General.

Dear Postmaster General Potter: I am writing to express my deep concern regarding the recent announcement that the United States Postal Service (USPS) is considering closing 37 post offices in Pennsylvania. I am well aware of the financial challenges that the USPS faces, and I am committed to working with the Postal Service to overcome these challenges while preserving jobs and the services on which thousands of Pennsylvanians depend....

Casey's letter could be viewed as either a kind offer of help or a threat. Either way, it represents a non-market pressure on the business dealings of the USPS. Could Federal Express or UPS survive, let alone make a profit, if they had politicians breathing down their necks regarding essential business decisions? Could any private business survive in a competitive marketplace under these circumstances? The likely answer is no.

This applies in the case of nearly every quasi-governmental venture. Politicians from both parties, beginning with President Clinton and including President Bush, prodded Fannie Mae and Freddie Mac to expand the pool of mortgages whose risk they would assume to include the credit-unworthy. We have since reaped the disastrous results of this business decision made for political reasons.

The lesson: hybrid government-business ventures have political aims which inevitably come to cross-purposes with their business goals.

Along the same lines, consider the much-debated government-run "public option" health insurance plan. Assume, generously, that it will not gouge and ultimately destroy its private competition through predatory pricing. How many lawmakers will pen letters like Casey's, in hopes of micromanaging this government-run insurance company's insurance activities? Can anyone take seriously the Obama administration's claim that a government-run insurance company will not begin receiving taxpayer subsidies, the moment its clients begin demanding additional services from their congressmen?

from the Wall Street Journal, 2009-Aug-22:

A Better Way to Go Postal
The justification for the Postal Service's monopoly is long past.

Whatever possessed President Obama to mention the travails of the post office while discussing health care the other day, his timing was certainly apt. The Postal Service is headed toward a loss of $7 billion this year and another $7 billion in 2010. Naturally, Congress is planning another bailout rather than the kind of reform that would recognize how technology has transformed modern communications.

Most mail today is delivered electronically via email. Traditional postal mail volume has fallen by nearly 20% since 2000, and the average household gets one-third fewer letters than a decade ago. But this is only the first stage of the decline. The transition to Internet communications means that the Postal Service's core business—from paying bills, to sending birthday greetings, to delivering magazines—is slowly vanishing. This is on top of the package business that has already been transformed by Federal Express and UPS.

Not that the Postal Service has ever been a paragon of efficiency. If the cost of a postage stamp had risen at merely the rate of inflation since 1950 when a stamp cost two cents, today you could send a first-class letter for 30 cents. Instead the cost rose in May to 44 cents from 42 cents.

These higher prices have corresponded with worsening service. The mailman used to deliver twice a day in urban areas, but now Postal Service Chief Executive John Potter says he wants to stop Saturday service to reduce costs. No private business in America could continually raise prices, lose billions of dollars and then hope to win back customers by promising poorer service.

Here's a secret Washington doesn't want to admit: That 14 cent per letter cost hike after inflation over the past 60 years imposes a $20 billion a year toll on the U.S. economy. The government mail system is essentially a $20 billion annual income transfer from businesses and households to the postal unions.

About 80 cents of every postal dollar pays for employee salaries and benefits (compared to less than 50 cents for Fed Ex and UPS). What that means is that if you want to cut costs at the post office, you have to slash labor expenses. Mr. Potter has reduced Postal Service employment to 650,000 from 800,000 the past four years, largely through attrition. But he still employs 650,000 workers who have among the best wages and benefits in all of American life.

Most employees have no-layoff clauses, the starting salaries are about 25% to 30% higher than for comparably skilled private workers, and the fringe benefits are so expensive that the Government Accountability Office says $500 million a year could be saved merely by bringing health benefits into line with those of other federal workers. Mr. Potter has to set aside $5 billion a year just to pay for health insurance. Postal management now wants to "save" money by not advance-funding those obligations, and Congress is likely to say yes. But that doesn't save a dime; it simply creates even larger unfunded liabilities down the road.

The four biggest postal-carrier union contracts come up for renewal in 2010 and 2011, and Congress and the Obama Administration can best serve the public by using the negotiations to promote a major restructuring. One priority should be closing thousands of obsolete post offices around the country; many post offices now serve towns with fewer than 250 people. This is something Mr. Potter has long wanted to do, but thanks to Congressional meddling, closing a small town post office can be harder than shutting a military base.

The most overdue reform is to strip away the Post Service's monopoly on first-class mail and bulk mail. Competition is the key ingredient to innovation, low prices and good service. This was Mr. Obama's insight at his recent health-care town hall when he noted that "UPS and FedEx are doing just fine, right? No, they are. It's the Post Office that's always having problems."

The argument has been made for 200 years that the postal monopoly is necessary to "bind the nation together." Once that was at least plausible. But today the Internet delivers to the most remote corners of Alaska and the Badlands at one-one-hundredth the cost of snail mail. The sooner Congress requires the Postal Service to shrink and adapt to this reality, the smaller will be the losses imposed on taxpayers.

from Red Green and Blue, 2009-Aug-25, by Joe Walsh:

'Cash for Refrigerators' Debuts in Fall. Really.

Before heading home to face the anger at the now infamous health care "town halls," Congress rushed through an extension to what was then considered a popular program: Cash for Clunkers. Then, like much of the August break, Cash for Clunkers went sideways as critics picked apart the program's weaknesses, consumers stopped showing up with so many clunkers, and dealers started making noise about something as simple as when they might actually get the rebate money that the government promised.

So, what do you do when you have a poorly-conceived and ill-managed project winding down (Clunkers expires at 8 p.m. eastern on August 24)? Kick off another one, even more poorly thought out, and gloss it with an equally catchy name: Cash for Refrigerators. Beginning in the fall, consumers will have access - through existing state-level energy efficiency incentive programs - $300 million in stimulus funds made available as rebates for energy efficient appliances.

So far, so good. If a consumer is out buying an appliance to replace an existing or broken-down one, it is better that they choose an energy efficient model. But, what about special incentive program purchases? Who is the buyer and why are they buying?

The answer is that the most well-educated and most discerning consumers become aware of and make use of special rebate programs for energy efficient appliances. These are not impulse buyers. Some may actually be committed to greening their kitchen and just waiting for the right incentive push, but I doubt it. In other words, my perception is that most of the $300 million will go to middle-class households that already may have a relatively efficient refrigerator, like Clunkers, it won't get at the really dreadful stuff in use in the lowest income households.

Worse still, this program does not borrow one component from Clunkers that would actually have been effective: there is no requirement to take the old appliance offline. Odds are that many of the middle class households claiming the rebate will use the new appliance in the kitchen, and move the old one to the basement, the garage, or the back porch, where it will be pressed into service storing extra beer and the overflow from Costco. The old fridge remains on the grid and we add in the new appliance too. Does that sound like a good environmental deal?

Granted, it would be very difficult to have consumers truck their old fridge in to dispose of it and claim eligibility for the program, but why not make disposal of the appliance part of the program and use some of the $300 million to fund existing programs in cities around the U.S. which haul away old appliances and make sure that they are disposed of properly - or, at all.

Without some guarantee that the old appliance is coming offline, there is no telling what the efficiency gains of this kind of spending might actually be. With appliances that are unlikely to find duplicate use in the house (i.e., a dishwasher), the program may return some value in kwH reduction; but, without a guarantee in place, we might just have given the cash directly to the appliance manufacturers and saved a lot of administrative difficulty.

from the Wall Street Journal, 2009-Aug-30, by Howard M. Brandston:

Save the Light Bulb!
Compact fluorescents don't produce good quality light.

The Energy Independence and Security Act of 2007 will effectively phase out incandescent light bulbs by 2012-2014 in favor of compact fluorescent lamps, or CFLs. Other countries around the world have passed similar legislation to ban most incandescents.

Will some energy be saved? Probably. The problem is this benefit will be more than offset by rampant dissatisfaction with lighting. We are not talking about giving up a small luxury for the greater good. We are talking about compromising light. Light is fundamental. And light is obviously for people, not buildings. The primary objective in the design of any space is to make it comfortable and habitable. This is most critical in homes, where this law will impact our lives the most. And yet while energy conservation, a worthy cause, has strong advocacy in public policy, good lighting has very little.

Even without taking into account people's preferences, CFLs, which can be an excellent choice for some applications, are simply not an equivalent technology to incandescents in all applications. For example, if you have dimmers used for home theater or general ambience, you must buy a compatible dimmable CFL, which costs more, and even then it may not work as desired on your dimmers. How environmental will it be for frustrated homeowners to remove and dispose of thousands of dimmers? What's more, CFLs work best in light fixtures designed for CFLs, and may not fit, provide desired service life, or distribute light in the same pleasing pattern as incandescents. How environmental will it be for homeowners to tear out and install new light fixtures?

None of these and other considerations appear to have been included in the technical justification for this law. Instead, the decision appears to have been made entirely based on a perception of efficiency gains. Light-source efficacy, expressed as lumens of light output per watt of electrical input, has been used as a comparative metric justifying encouragement of CFLs. But this metric is flawed for one simple reason: It is a laboratory measurement and a guide, not a truth, in the field; actual energy performance will depend on numerous application characteristics and product quality.

If energy conservation were to be the sole goal of energy policy, and efficacy were to be the sole technical consideration, then why CFLs? If we really want to save energy, we would advocate high-pressure sodium lamps—those large bulbs that produce bright orangish light in many streetlights. Their efficacy is more than double what CFLs can offer. Of course this would not be tolerated by the public. This choice shows that we are willing to advocate bad lighting—but not horrible lighting.

Not yet, at least. Energy regulations pending in Washington set aggressive caps on power allowances for energy-using systems in commercial and residential buildings. These requirements have never been tested.

Here's my modest proposal to determine whether the legislation actually serves people. Satisfy the proposed power limits in all public buildings, from museums, houses of worship and hospitals to the White House and the homes of all elected officials. Of course, this will include replacing all incandescents with CFLs. At the end of 18 months, we would check to be certain that the former lighting had not been reinstalled, and survey all users to determine satisfaction with the resulting lighting.

Based on the data collected, the Energy Independence and Security Act and energy legislation still in Congress would be amended to conform to the results of the test. Or better yet, scrapped in favor of a thoughtful process that could yield a set of recommendations that better serve our nation's needs by maximizing both human satisfaction and energy efficiency.

As a lighting designer with more than 50 years of experience, having designed more than 2,500 projects including the relighting of the Statue of Liberty, I encourage people who care about their lighting to contact their elected officials and urge them to re-evaluate our nation's energy legislation so that it serves people, not an energy-saving agenda.

Mr. Brandston (www.concerninglight.com) is a lighting consultant, professor and artist.

from the Wall Street Journal, 2009-Jul-14, by Mortimer Zuckerman:

The Economy Is Even Worse Than You Think
The average length of unemployment is higher than it's been since government began tracking the data in 1948.

The recent unemployment numbers have undermined confidence that we might be nearing the bottom of the recession. What we can see on the surface is disconcerting enough, but the inside numbers are just as bad.

The Bureau of Labor Statistics preliminary estimate for job losses for June is 467,000, which means 7.2 million people have lost their jobs since the start of the recession. The cumulative job losses over the last six months have been greater than for any other half year period since World War II, including the military demobilization after the war. The job losses are also now equal to the net job gains over the previous nine years, making this the only recession since the Great Depression to wipe out all job growth from the previous expansion.

Here are 10 reasons we are in even more trouble than the 9.5% unemployment rate indicates:

- June's total assumed 185,000 people at work who probably were not. The government could not identify them; it made an assumption about trends. But many of the mythical jobs are in industries that have absolutely no job creation, e.g., finance. When the official numbers are adjusted over the next several months, June will look worse.

- More companies are asking employees to take unpaid leave. These people don't count on the unemployment roll.

- No fewer than 1.4 million people wanted or were available for work in the last 12 months but were not counted. Why? Because they hadn't searched for work in the four weeks preceding the survey.

- The number of workers taking part-time jobs due to the slack economy, a kind of stealth underemployment, has doubled in this recession to about nine million, or 5.8% of the work force. Add those whose hours have been cut to those who cannot find a full-time job and the total unemployed rises to 16.5%, putting the number of involuntarily idle in the range of 25 million.

- The average work week for rank-and-file employees in the private sector, roughly 80% of the work force, slipped to 33 hours. That's 48 minutes a week less than before the recession began, the lowest level since the government began tracking such data 45 years ago. Full-time workers are being downgraded to part time as businesses slash labor costs to remain above water, and factories are operating at only 65% of capacity. If Americans were still clocking those extra 48 minutes a week now, the same aggregate amount of work would get done with 3.3 million fewer employees, which means that if it were not for the shorter work week the jobless rate would be 11.7%, not 9.5% (which far exceeds the 8% rate projected by the Obama administration).

- The average length of official unemployment increased to 24.5 weeks, the longest since government began tracking this data in 1948. The number of long-term unemployed (i.e., for 27 weeks or more) has now jumped to 4.4 million, an all-time high.

- The average worker saw no wage gains in June, with average compensation running flat at $18.53 an hour.

- The goods producing sector is losing the most jobs -- 223,000 in the last report alone.

- The prospects for job creation are equally distressing. The likelihood is that when economic activity picks up, employers will first choose to increase hours for existing workers and bring part-time workers back to full time. Many unemployed workers looking for jobs once the recovery begins will discover that jobs as good as the ones they lost are almost impossible to find because many layoffs have been permanent. Instead of shrinking operations, companies have shut down whole business units or made sweeping structural changes in the way they conduct business. General Motors and Chrysler, closed hundreds of dealerships and reduced brands. Citigroup and Bank of America cut tens of thousands of positions and exited many parts of the world of finance.

Job losses may last well into 2010 to hit an unemployment peak close to 11%. That unemployment rate may be sustained for an extended period.

Can we find comfort in the fact that employment has long been considered a lagging indicator? It is conventionally seen as having limited predictive power since employment reflects decisions taken earlier in the business cycle. But today is different. Unemployment has doubled to 9.5% from 4.8% in only 16 months, a rate so fast it may influence future economic behavior and outlook.

How could this happen when Washington has thrown trillions of dollars into the pot, including the famous $787 billion in stimulus spending that was supposed to yield $1.50 in growth for every dollar spent? For a start, too much of the money went to transfer payments such as Medicaid, jobless benefits and the like that do nothing for jobs and growth. The spending that creates new jobs is new spending, particularly on infrastructure. It amounts to less than 10% of the stimulus package today.

About 40% of U.S. workers believe the recession will continue for another full year, and their pessimism is justified. As paychecks shrink and disappear, consumers are more hesitant to spend and won't lead the economy out of the doldrums quickly enough.

It may have made him unpopular in parts of the Obama administration, but Vice President Joe Biden was right when he said a week ago that the administration misread how bad the economy was and how effective the stimulus would be. It was supposed to be about jobs but it wasn't. The Recovery Act was a single piece of legislation but it included thousands of funding schemes for tens of thousands of projects, and those programs are stuck in the bureaucracy as the government releases the funds with typical inefficiency.

Another $150 billion, which was allocated to state coffers to continue programs like Medicaid, did not add new jobs; hundreds of billions were set aside for tax cuts and for new benefits for the poor and the unemployed, and they did not add new jobs. Now state budgets are drowning in red ink as jobless claims and Medicaid bills climb.

Next year state budgets will have depleted their initial rescue dollars. Absent another rescue plan, they will have no choice but to slash spending, raise taxes, or both. State and local governments, representing about 15% of the economy, are beginning the worst contraction in postwar history amid a deficit of $166 billion for fiscal 2010, according to the Center on Budget and Policy Priorities, and a gap of $350 billion in fiscal 2011.

Households overburdened with historic levels of debt will also be saving more. The savings rate has already jumped to almost 7% of after-tax income from 0% in 2007, and it is still going up. Every dollar of saving comes out of consumption. Since consumer spending is the economy's main driver, we are going to have a weak consumer sector and many businesses simply won't have the means or the need to hire employees. After the 1990-91 recessions, consumers went out and bought houses, cars and other expensive goods. This time, the combination of a weak job picture and a severe credit crunch means that people won't be able to get the financing for big expenditures, and those who can borrow will be reluctant to do so. The paycheck has returned as the primary source of spending.

This process is nowhere near complete and, until it is, the economy will barely grow if it does at all, and it may well oscillate between sluggish growth and modest decline for the next several years until the rebalancing of excessive debt has been completed. Until then, the economy will be deprived of adequate profits and cash flow, and businesses will not start to hire nor race to make capital expenditures when they have vast idle capacity.

No wonder poll after poll shows a steady erosion of confidence in the stimulus. So what kind of second-act stimulus should we look for? Something that might have a real multiplier effect, not a congressional wish list of pet programs. It is critical that the Obama administration not play politics with the issue. The time to get ready for a serious infrastructure program is now. It's a shame Washington didn't get it right the first time.

Mr. Zuckerman is chairman and editor in chief of U.S. News & World Report.

from the Wall Street Journal Europe, 2009-May-20, by Alberto Mingardi:

Our Brave New Competitive World
Companies considered too big to fail get state aid while companies considered too big to succeed get cut down by state agents.

When competition becomes unpopular, what happens to competition policy?

The question resonates on both sides of the Atlantic. The new U.S. antitrust chief, Christine Varney, last week announced plans to toughen competition policy, or, to be more precise, revise it in Europe's image. Meanwhile, America's new antitrust role model showed how it's being done. Neelie Kroes's swan song as European Commissioner was to dish out last week a record fine to microchip giant Intel. With a roughly 76% share of the microprocessor market, the alleged abuse of its dominant position will cost Intel some €1.06 billion.

This regulatory energy to punish Intel is astounding given that the ruling stands on debatable legal grounds. The Commission fined Intel for alleged abuses related to rebates and discounts the company gave to computer-makers and retailers. Intel's arguments that innovation over the last decade was vibrant, that the market share of its main rival, AMD, actually increased, and the market consolidation into two big players didn't harm consumers, counted for little.

The large fine and tougher antitrust enforcement are likely to further hamper economic recovery. No matter how convincing the legal arguments may be, the fine -- both for its target and its magnitude -- will be interpreted as a "tax" on innovation. And innovation, we keep hearing from both sides of the Atlantic, is the key to future growth and prosperity. The pursuit of innovation is perhaps one of the few features of business operations that is appreciated across the political spectrum.

But innovation requires investments, which are not easily made without a reasonable prospect of return. It is here that our societies become tight-fisted. To be innovative, it may be that businesses need to be big in order to take advantage of economies of scale. Or, innovative practices may simply result in a big, dominant company. By targeting big business qua big, antitrust hobbles innovative economic players. Perhaps "big" is not good per se -- but the ambition to get bigger, i.e. to succeed, is capitalism's lifeblood and enriches society as a whole.

This conflict between antitrust policy and economic incentives may be as old as antitrust itself. Competition policy is genetically biased in favor of the little guy. But the tone of antitrust discussion had softened greatly in the last decades, especially in the U.S.

Skeptics of traditional competition policy managed to change the discourse as trust-busters were asked to first understand what entrepreneurs do and the markets in which they operate before casting stones. Antitrust skeptics also encouraged a little more cynicism toward lawsuits brought by competitors. Competition by litigation is often a viable strategy for weaker market players. A consensus emerged in the Reagan era that it was more efficient to let the market, rather than regulators, choose winners and losers. A more interventionist antitrust policy goes hand in hand with the current resurgence of big government. As this economic crisis has undermined the public's faith in capitalism, the regulators are called in to prove themselves useful, i.e. to be ready to correct the market's verdicts.

The government's distrust of successful big businesses stands in contrast to its unwavering support for failed big businesses. U.S. and European governments have bailed out large banks exactly because of their size and with the tacit consent of antitrust authorities. These competition watchdogs zoom instead on innovative business giants -- such as Intel or Microsoft -- that create jobs and prosperity. We face an absurd situation of government intervention: Companies considered too big to fail are kept alive by state aid while companies considered too big to succeed are cut down by state agents until they are too small or too intimidated to innovate.

We will pay the first bill as taxpayers, the second as consumers.

Mr. Mingardi is director general of Istituto Bruno Leoni.

from the Wall Street Journal, 2009-Aug-21:

Sugar Land
Obama's slow roll on free trade.

President Obama will need more than sweet talk to smooth his way through this year's trade dilemmas. Last week, food companies sent a letter to Agriculture Secretary Tom Vilsack to warn that a sugar shortage is possible if the department doesn't raise import quotas. How the Administration resolves the dispute will send a message about Mr. Obama's view of protectionist policies amidst a recession.

So far, the prospects don't look good. In early August, Agriculture Undersecretary Jim Miller announced that if the department planned to raise the annual quota on sugar imports, it would do so within two weeks. That date passed without action on Monday, and so sent a friendly wink to the sugar lobby. Noting that he considered the market "adequately supplied" and that changes later in the year would be impractical for deliveries, Mr. Miller told CongressDaily, making such an adjustment was "unlikely."

Mark it as an early retreat by the Obama Administration to a small group of domestic producers who wield an outsized political influence in the fight against trade liberalization. In states from Florida to Minnesota, sugar producers have their profits guaranteed by a price floor created by the import restrictions. Anyone who doubts their influence in Washington need only review the battle over the Central American Free Trade Agreement, which the sugar growers nearly throttled over the prospect of a 1% increase in annual import quotas.

Each year, the amount of foreign sugar that manufacturers may use is limited to protect U.S. sugar farmers who benefit from artificially higher prices on the domestic market. According to the letter to Secretary Vilsack, signed by companies like Kraft, Hershey and Mars, without some easing "consumers will pay higher prices [and] food manufacturing jobs will be at risk." But scarcity is only half the issue. The other half is a protectionist program that distorts trade and has negative economic consequences.

The costs have been a sticky issue for years. According to a 2006 study by the U.S. International Trade Administration, each sugar job saved by propping up domestic producers costs three jobs in manufacturing, with many companies relocating to countries such as Canada and Mexico where the price of sugar can be one-half to two-thirds the rate in the U.S. So instead of importing sugar, the U.S. brings in more sugary finished products, with imports rising to $18.7 billion in 2004 from $6.7 billion in 1990.

The Administration's reluctance to take on the sugar lobby comes in the context of what is beginning to look like a slow roll by the President on free-trade principles. In September, the Administration must also decide whether to allow tariffs or quotas on imported car tires from China. Standing for free trade would require the administration to stand up to some powerful unions. So far, no evidence of that.

In a recent Pittsburgh speech, U.S. Trade Representative Ron Kirk spoke primarily about trade enforcement issues, but the Administration has quietly encouraged protectionist policies. According to U.S. Chamber of Commerce Vice President John Murphy, the "Buy American" requirements of the stimulus package are stalling projects in some states and municipalities struggling to comply.

Challenging the status quo may be tough for President Obama, but a commitment to embrace standards of free trade early in his Presidency would be a boon to U.S. trade leadership. Big Sugar has long been the recipient of one of Washington's most destructive policies, and the continued price manipulation has no place in a recession. President Obama should increase the quotas and end American sugar's sweet deal.

from the Wall Street Journal's Political Diary, 2009-May-18, by John Fund:

Caveat Emptor

Word is that a compromise may be in the works on union-backed "card check" legislation that would dramatically expand union power. For one thing, the bill would make it easier to eliminate secret ballot elections to organize a workplace. That makes three Chicago billionaires who supported hometown favorite Barack Obama nervous.

Bloomberg News reports that Penny Pritzker, Mr. Obama's campaign finance chairman last year, is very worried the bill will undermine her ability to keep her Hyatt Hotel empire competitive. She has personally expressed her opposition to Mr. Obama. Other opponents of card check are Neil Bluhm, a partner in Walton Street Capital, Inc., and Lester Crown, chairman of Henry Crown & Co. Voting privately is "an American prerogative and shouldn't be overturned," Mr. Crown told Bloomberg. "The recommended legislation is absolutely the wrong thing to do."

"Card check is a gut check on support for their hometown [president]" among Chicago's once-enthusiastic business leaders, says Bloomberg.

That may be true, but Mr. Obama was on record endorsing card check years ago and has never wavered in his support. For all the money Ms. Pritzker and her fellow billionaires raised for Mr. Obama, their donations are dwarfed by the money and manpower that labor unions put behind his candidacy last year. The Chicago Three may have thought they would have seats at the Obama table. They are likely only to get table scraps of influence compared to organized labor.

from the Wall Street Journal, 2009-May-21, p.A19, by Bjorn Lomborg:

The Climate-Industrial Complex
Some businesses see nothing but profits in the green movement.

Some business leaders are cozying up with politicians and scientists to demand swift, drastic action on global warming. This is a new twist on a very old practice: companies using public policy to line their own pockets.

The tight relationship between the groups echoes the relationship among weapons makers, researchers and the U.S. military during the Cold War. President Dwight Eisenhower famously warned about the might of the "military-industrial complex," cautioning that "the potential for the disastrous rise of misplaced power exists and will persist." He worried that "there is a recurring temptation to feel that some spectacular and costly action could become the miraculous solution to all current difficulties."

This is certainly true of climate change. We are told that very expensive carbon regulations are the only way to respond to global warming, despite ample evidence that this approach does not pass a basic cost-benefit test. We must ask whether a "climate-industrial complex" is emerging, pressing taxpayers to fork over money to please those who stand to gain.

This phenomenon will be on display at the World Business Summit on Climate Change in Copenhagen this weekend. The organizers -- the Copenhagen Climate Council -- hope to push political leaders into more drastic promises when they negotiate the Kyoto Protocol's replacement in December.

The opening keynote address is to be delivered by Al Gore, who actually represents all three groups: He is a politician, a campaigner and the chair of a green private-equity firm invested in products that a climate-scared world would buy.

Naturally, many CEOs are genuinely concerned about global warming. But many of the most vocal stand to profit from carbon regulations. The term used by economists for their behavior is "rent-seeking."

The world's largest wind-turbine manufacturer, Copenhagen Climate Council member Vestas, urges governments to invest heavily in the wind market. It sponsors CNN's "Climate in Peril" segment, increasing support for policies that would increase Vestas's earnings. A fellow council member, Mr. Gore's green investment firm Generation Investment Management, warns of a significant risk to the U.S. economy unless a price is quickly placed on carbon.

Even companies that are not heavily engaged in green business stand to gain. European energy companies made tens of billions of euros in the first years of the European Trading System when they received free carbon emission allocations.

American electricity utility Duke Energy, a member of the Copenhagen Climate Council, has long promoted a U.S. cap-and-trade scheme. Yet the company bitterly opposed the Warner-Lieberman bill in the U.S. Senate that would have created such a scheme because it did not include European-style handouts to coal companies. The Waxman-Markey bill in the House of Representatives promises to bring back the free lunch.

U.S. companies and interest groups involved with climate change hired 2,430 lobbyists just last year, up 300% from five years ago. Fifty of the biggest U.S. electric utilities -- including Duke -- spent $51 million on lobbyists in just six months.

The massive transfer of wealth that many businesses seek is not necessarily good for the rest of the economy. Spain has been proclaimed a global example in providing financial aid to renewable energy companies to create green jobs. But research shows that each new job cost Spain 571,138 euros, with subsidies of more than one million euros required to create each new job in the uncompetitive wind industry. Moreover, the programs resulted in the destruction of nearly 110,000 jobs elsewhere in the economy, or 2.2 jobs for every job created.

The cozy corporate-climate relationship was pioneered by Enron, which bought up renewable energy companies and credit-trading outfits while boasting of its relationship with green interest groups. When the Kyoto Protocol was signed, an internal memo was sent within Enron that stated, "If implemented, [the Kyoto Protocol] will do more to promote Enron's business than almost any other regulatory business."

The World Business Summit will hear from "science and public policy leaders" seemingly selected for their scary views of global warming. They include James Lovelock, who believes that much of Europe will be Saharan and London will be underwater within 30 years; Sir Crispin Tickell, who believes that the United Kingdom's population needs to be cut by two-thirds so the country can cope with global warming; and Timothy Flannery, who warns of sea level rises as high as "an eight-story building."

Free speech is important. But these visions of catastrophe are a long way outside of mainstream scientific opinion, and they go much further than the careful findings of the United Nations panel of climate change scientists. When it comes to sea-level rise, for example, the United Nations expects a rise of between seven and 23 inches by 2100 -- considerably less than a one-story building.

There would be an outcry -- and rightfully so -- if big oil organized a climate change conference and invited only climate-change deniers.

The partnership among self-interested businesses, grandstanding politicians and alarmist campaigners truly is an unholy alliance. The climate-industrial complex does not promote discussion on how to overcome this challenge in a way that will be best for everybody. We should not be surprised or impressed that those who stand to make a profit are among the loudest calling for politicians to act. Spending a fortune on global carbon regulations will benefit a few, but dearly cost everybody else.

Mr. Lomborg is director of the Copenhagen Consensus, a think tank, and author of "Cool It: The Skeptical Environmentalist's Guide to Global Warming" (Knopf, 2007).

from the Wall Street Journal, 2009-Sep-23, p.A23, by Robert D. Kaplan:

A Gusher Of Trouble
Why nations rich in oil are often plagued by poverty and corruption.

Just as there was the Bronze Age and the Iron Age, there is now the Oil Age, and we are living through its last waning decades. Juan Pablo Perez Alfonzo, a former Venezuelan oil minister who came up with the idea for a cartel in the 1960s, called oil the "devil's excrement." Peter Maass, in "Crude World," a spare, engaging work of reporting and travel writing, calls oil "black oxygen." It is a neat phrase because, as Mr. Maass demonstrates, oil is almost as essential to our lives as the air we breathe, yet its effect on the countries that produce it, and on the super-alpha males who run the oil industry, is quite sinister. This is a dark book, though not because Mr. Maass is a pessimist—he isn't. It's just that his itinerary (Equatorial Guinea, Nigeria, Russia, and other benighted locales) lends itself to deep foreboding about the human condition.

Oil corrupts, Mr. Maass says, because it is an "extractive" industry. The computer business and other industries actually design and produce something, but oil is simply taken out of the ground. Thus power lies in the hands of the king, dictator or prime minister who controls the real estate and with whom all sorts of unsavory deals can be struck. Extractive industries "do most of their business in compromise-inducing countries," Mr. Maass explains. "The problem is not that extractive industries have lower principles than other industries. The problem is that they must have better principles"—something that shareholders do not necessarily encourage. Because the number of oil fields on the planet is finite, and the oil in many of them is difficult to extract, the industry is governed by a zero-sum and aggressive realism of the bleakest sort.

Crude World
By Peter Maass
Knopf, 276 pages, $27

Take Vagit Alekperov, the president of Russia's Lukoil, with a stocky build and "laser stare that could melt a glacier." On his way to the industry's top rung, he lived on dangerous offshore rigs and bribed a Central Asian president with an airplane. And yet nowadays the oil man keeps a picture of Russian strong man Vladimir Putin on his desk, an indication that even a thuggish presence like Mr. Alekperov knows who's boss. Just as the discovery of Siberian oil kept the Soviet Union afloat for decades longer than it deserved, Mr. Maass notes, skyrocketing oil prices in this decade have buttressed Mr. Putin's neo-czarist authoritarianism.

The moral pit of the oil world is not Russia but Equatorial Guinea, a country in west-central Africa ruled by the violent dictator and torturer Teodoro Obiang, with whom Big Oil made a deal in the 1990s. The hundreds of millions of dollars spent to extract oil from the country has done nothing for the local economy, which remains one of the poorest on Earth. Mr. Maass's visit to a Marathon natural-gas facility in Equatorial Guinea is like a visit to another planet. Everything is imported, even the South Asian labor. The cement for construction is produced on site; the facility has its own water-purification and sewage system. There is almost no contact with the host country. The profits go to Marathon, a Houston company, and to Mr. Obiang's private bank accounts. A man given to excess, Mr. Obiang once bought, for $49.5 million, a Boeing 737, in which the bathroom fixtures were gold-plated.

Then there is Nigeria, which has earned $400 billion from oil profits in recent decades; yet, as Mr. Maass tells us, "nine out of ten citizens live on less than $2 a day, and one out of five children dies before his fifth birthday." Senegal, which exports fish and nuts, beats Nigeria in per capita income. According to the World Bank, 1% of the Nigerian population—presidents, generals, executives, middlemen and so on—have grabbed 80% of the country's oil wealth. This is how an extractive industry operates in a politically fractured land of weak and nonexistent institutions.

Whether Mr. Maass is in the primeval, environmentally ruined Niger Delta region of southern Nigeria, or in a Venezuelan slum where "even the jobless are mugged," or in a menacing and soulless Moscow high-rise, or among wayward, spoiled-brat Saudi youth, he shows how the trail of oil leads a traveler to either grim poverty or repulsive wealth. Oil, he seems to say, exaggerates the worst human tendencies.

Iraq is also part of the author's itinerary. Mr. Maass acknowledges that the idea of the Iraq war being waged for oil is largely a conspiracy theory. But he suggests that behind the established motives of the Bush administration—finding weapons of mass destruction, instilling democracy, ridding the world of one of its worst dictators—the war in Iraq, on a deeper geopolitical and historical level, was indeed about oil. And I agree with him; for without oil, the importance of Iraq greatly diminishes. Without oil, there could not have been a WMD program, real or imagined, in the first place. It was oil wealth that gave Saddam Hussein such sway over the Arab masses. It was oil that held out the promise of a prosperous and democratic Iraq in the minds of those who favored regime change.

The problem is that Mr. Maass doesn't elaborate sufficiently on his Iraq argument. He never really nails it down as he does so many other points in the book. Nor does he give us a hint of what the geopolitical landscape will be as oil production comes off its peaks and continues to diminish. He ends "Crude World" with a vision of windmills in Southern California—an icon of new energy sources. But as that future slowly arrives, what will be the fate of the places on his itinerary? What will the Middle East or the Gulf of Guinea look like politically and cartographically? He doesn't address the question. But his dogged travels make one yearn to know the answer.

Mr. Kaplan is a senior fellow at the Center for a New American Security and a national correspondent for The Atlantic.

from Creators Syndicate Inc. via RasmussenReports.com, 2009-May-27, by Tony Blankley:

Economic Reality of 5 Million Green Jobs

In 1845, the French economist Frederic Bastiat published a satirical petition from the "Manufacturers of Candles" to the French Chamber of Deputies, which ridiculed the arguments made on behalf of inefficient industries to protect them from more efficient producers: "We are suffering from the ruinous competition of a rival who apparently works under conditions so far superior to our own for the production of light that he is flooding the domestic market with it at an incredibly low price; for the moment he appears, our sales cease, all the consumers turn to him, and a branch of French industry whose ramifications are innumerable is all at once reduced to complete stagnation. This rival, which is none other than the sun, is waging war on us.

We ask you to be so good as to pass a law requiring the closing of all windows, dormers, skylights, inside and outside shutters, curtains, casements, bull's-eyes, deadlights, and blinds -- in short, all openings, holes, chinks, and fissures through which the light of the sun is wont to enter houses, to the detriment of the fair industries with which, we are proud to say, we have endowed the country."

This famous put-down highlights the problem of claiming that protecting inefficient producers creates good jobs. Obviously, the money the French would have wasted on unneeded candles could have been spent on needed products and services -- to the increased prosperity of the French economy.

I mention this in the context of the Obama administration's assertion that by subsidizing alternative energy sources, it will create 5 million green jobs. To that end, Congress passed in the stimulus bill $110 billion to subsidize and otherwise support such green efforts. And in conceptual support of that argument, the administration has referred to "what's happening in countries like Spain, Germany and Japan, where they're making real investments in renewable energy."

Well, in March, one of Spain's leading universities, Universidad Rey Juan Carlos, published an authoritative study "of the effects on employment of public aid to renewable energy sources." The report pointed out: "This study is important for several reasons. First is that the Spanish experience is considered a leading example to be followed by many policy advocates and politicians. This study marks the very first time a critical analysis of the actual performance and impact has been made. Most important, it demonstrates that the Spanish/EU-style 'green jobs' agenda now being promoted in the U.S. in fact destroys jobs, detailing this in terms of jobs destroyed per job created."

The central finding of the study is that -- treating the data optimistically -- for every renewable-energy job that the government finances, "Spain's experience . reveals with high confidence, by two different methods, that the U.S. should expect a loss of at least 2.2 jobs on average, or about 9 jobs lost for every 4 created."

Despite expensive and extensive green-job policies, a surprisingly low number of jobs were created. And about two-thirds of those "green" jobs were just to set up the energy source, in construction, fabrication, installation, marketing and administration. Only 10 percent of the green jobs created were permanent jobs actually operating and maintaining the renewable sources of energy.

Each wind industry job created in Spain required a subsidy of about $1.4 million. Overall, the average subsidy cost for each green job was about $800,000 (571,138 euros). And to create about 50,000 green jobs, Spain lost 110,000 jobs elsewhere in the economy, principally in metallurgy, nonmetallic mining and food processing and in the beverage and tobacco industries.

Each green megawatt brought on line destroyed 5.28 jobs elsewhere in the economy (8.99 by photovoltaics, 4.27 by wind energy and 5.05 by mini-hydropower). The total higher energy cost -- the higher cost of renewable energy over the market price of carbon-based energy -- between 2000 and 2008 was about $10 billion. Moreover, the report concluded, "These costs do not appear to be unique to Spain's approach but instead are largely inherent in schemes to promote renewable energy sources."

The high cost of green energy predictably drove energy-intensive Spanish companies and industries out of Spain to countries with cheaper carbon-based energy, while the cost to Spanish taxpayers of renewable-energy subsidies was "enormous . 4.35 percent of all (value-added taxes) collected, 3.45 percent of the household income tax, or 5.6 percent of the corporate income tax."

There is much more in the report, which at about 50 pages in length would make useful reading for our elected representatives. Those who are worried about global warming may, after studying this report, still want to subsidize renewable-energy production. But it will be hard for such people to honestly continue to believe that they can think they are addressing global warming while creating millions of net new jobs.

Tony Blankley is executive vice president of Edelman public relations in Washington.

from the Wall Street Journal, 2009-Aug-28, by Ann Davis and Russell Gold:

U.S. Biofuel Boom Running on Empty

The biofuels revolution that promised to reduce America's dependence on foreign oil is fizzling out.

Two-thirds of U.S. biodiesel production capacity now sits unused, reports the National Biodiesel Board. Biodiesel, a crucial part of government efforts to develop alternative fuels for trucks and factories, has been hit hard by the recession and falling oil prices.

The global credit crisis, a glut of capacity, lower oil prices and delayed government rules changes on fuel mixes are threatening the viability of two of the three main biofuel sectors -- biodiesel and next-generation fuels derived from feedstocks other than food. Ethanol, the largest biofuel sector, is also in financial trouble, although longstanding government support will likely protect it.

Earlier this year, GreenHunter Energy Inc., operator of the nation's largest biodiesel refinery, stopped production and in June said it may have to sell its Houston plant, only a year after politicians presided over its opening. Dozens of other new biodiesel plants, which make a diesel substitute from vegetable oils and animal fats, have stopped operating because biodiesel production is no longer economical.

Producers of next-generation biofuels -- those using nonfood renewable materials such as grasses, cornstalks and sugarcane stalks -- are finding it tough to attract investment and ramp up production to an industrial scale. The sector suffered a major setback this summer after a federal jury ruled that Cello Energy of Alabama, a plant-fiber-based biofuel producer, had defrauded investors. Backed by venture capitalist Vinod Khosla, Cello was expected to supply 70% of the 100.7 million gallons of cellulosic biofuels that the Environmental Protection Agency planned to blend into the U.S. fuel supply next year. The alleged fraud will almost certainly prevent the EPA from meeting its targets next year, energy analysts say.

The wave of biodiesel failures and Cello's inability to produce even a fraction of what it expected have spooked private investors, which could further delay technology breakthroughs and derail the government's green energy objectives.

"If your investors are losing money in first-generation biofuels, I guarantee you they'll be more reluctant to put money into more biofuels, including next-generation fuels," says Tom Murray, global head of energy for German bank WestLB, one of the leading lenders to ethanol and biodiesel makers.

Domestically produced biofuels were supposed to be an answer to reducing America's reliance on foreign oil. In 2007, Congress set targets for the U.S. to blend 36 billion gallons of biofuels a year into the U.S. fuel supply in 2022, from 11.1 billion gallons in 2009. That would increase biofuels' share of the liquid-fuel mix to roughly 16% from 5%, based on U.S. Energy Information Administration fuel-demand projections.

Corn ethanol, which has been supported by government blending mandates and other subsidies for years, has come under fire for driving up the price of corn and other basic foodstuffs. While it will continue to be produced, corn ethanol's dominant role in filling the biofuels' blending mandate was set to shrink through 2022. Cellulosic ethanol, derived from the inedible portions of plants, and other advanced fuels were expected to surpass corn ethanol to fill close to half of all biofuel mandates in that time.

But the industry is already falling behind the targets. The EPA, which implements the congressional blending mandates, still hasn't issued any regulations to allow biodiesel blending, though they were supposed to start in January. The mandate to blend next-generation fuels, which kicks in next year, is unlikely to be met because of a lack of enough viable production.

"I don't believe there's a man, woman or child who believes the industry can hit" the EPA's 2010 biofuel blending targets, says Bill Wicker, spokesman for Sen. Jeff Bingaman of New Mexico, chairman of the Senate Energy Committee.

The business models for most biofuel companies were predicated on a much higher price of crude oil, making biofuels more attractive. A government-guaranteed market was also central to business plans.

But once blending mandates were postponed, oil prices plunged and the recession crushed fuel demand, many biodiesel companies started operating in the red. Even ethanol producers, which have enjoyed government subsidies and growing federal requirements to blend it into gasoline, have been operating at a loss over the past year. Numerous established producers have filed for Chapter 11 bankruptcy-court protection.

Critics of the biofuels boom say government support helped create the mess in the first place. In 2007, biofuels including ethanol received $3.25 billion in subsidies and support -- more than nuclear, solar or any other energy source, according to the Energy Information Administration. With new stimulus funding, this figure is expected to jump. New Energy Finance Ltd., an alternative-energy research firm, estimates that blending mandates alone would provide over $33 billion in tax credits to the biofuels industry from 2009 through 2013.

Not all biofuels may be worth the investment because they divert land from food crops, are expensive to produce and may be eclipsed by the electric car. One fact cited against biofuels: If the entire U.S. supply of vegetable oils and animal fats were diverted to make biodiesel, production still would amount to at most 7% of U.S. diesel demand.

Producers and investors now are pushing for swift and aggressive government help. Biodiesel makers are lobbying to kick-start the delayed blending mandates immediately and extend biodiesel tax credits, which expire in December.

On Aug. 7 more than two dozen U.S. senators wrote to President Barack Obama to warn that "numerous bankruptcies loom" in the biodiesel sector. "If this situation is not addressed immediately, the domestic biodiesel industry expects to lose 29,000 jobs in 2009 alone," the senators wrote, using estimates by the National Biodiesel Board.

Mr. Obama, who supported biofuels throughout his campaign, is working to roll out grants and loan guarantees for bio-refineries and green fuel projects, said Heather Zichal, a White House energy adviser. The pace of the disbursements should speed up this fall, administration officials say.

Obama officials defended the delay in biodiesel mandates. The EPA in May proposed rules that penalize soy-based diesel under the blending mandates, because deforestation from soybean cultivation is thought to offset the fuel's environmental benefits. Obama officials say the EPA must perform a thorough environmental review before it can issue rules. The amount of biodiesel that was to have been blended in 2009 will be added to the amount required for 2010, so that no volume is lost, they add.

Any state help might be too late for GreenHunter Energy. In 2007, the company, led by energy exploration executive Gary Evans, acquired a Houston refinery that processed used motor oil and chemicals and retrofit it to make 105 million gallons of biodiesel a year from all manner of feedstocks, from soybean oil and beef tallow to, potentially, inedible plant matter. GreenHunter's business model hinged on selling to a government-guaranteed buyer: GreenHunter has the capacity to make 20% of the 500 million gallons of biodiesel that Congress wanted to be blended into the 2009 fuel supply.

Until the mandate kicked in, GreenHunter and other biodiesel makers counted on exporting their output to Europe, a much bigger user of diesel.

GreenHunter opened in June 2008 as oil prices skyrocketed. By then, soybean oil prices were soaring, too, pinching refiners that had banked on using soy. Mr. Evans switched to inedible animal fats.

For about a month, when oil hovered above $120 a barrel and traditional diesel ran over $4 a gallon, GreenHunter says profit margins on turning animal fat into diesel rose as high as $1.25 a gallon. It wasn't sustainable. The price of animal fat soared too, cutting margins again.

As the EPA continued to delay the blending mandates, the global downturn obliterated demand for regular diesel. Prices cratered. GreenHunter's plant took a direct hit from Hurricane Ike in September. By the time the plant reopened in late November, the price of diesel had dropped by more than half, and GreenHunter was losing money on every gallon of fuel.

The European Union dealt the final blow this spring when it slapped a tariff on U.S. biodiesel, killing what had been the industry's main sales outlet.

GreenHunter has since stopped producing biodiesel. The American Stock Exchange informed GreenHunter in May that the company was out of compliance with some listing requirements; the firm has submitted a plan to remain listed. Its stock has sunk to about $2 a share from a high of $24.75 in May 2008.

Bio-refinery carcasses are everywhere. GreenHunter's lender, West LB, arranged $2 billion in ethanol and biodiesel loans, selling them to various investors beginning around 2006. Today, half of the $2 billion in loans have defaulted or are being restructured, according to people familiar with the portfolio. Publicly traded Nova Biosource Fuels Inc. filed for Chapter 11 bankruptcy reorganization in March.

Imperium Renewables, a biodiesel maker in Washington, is trying to hang on as a storage depot, its founder says. Evolution Fuels, an outfit that used to sell a biodiesel brand licensed by country singer Willie Nelson, has stopped production and said in a securities filing it may not be able to continue as a going concern. The company didn't return calls for comment.

Some senators have introduced a bill to extend biodiesel tax credits. A provision passed in the House grandfathers soy-based biodiesel into the blending mandates for five years.

Second-generation biofuels have had their own setbacks.

When seeking investors for Cello Energy in 2007, Jack Boykin, an entrepreneur with a background in biochemistry, said Cello had made diesel economically in a four-million-gallon-a-year pilot plant from grass, hay and used tires. What's more, he told investors he had successfully used the fuel in trucks, according to testimony in a federal court case in Mobile, Ala. He said he had invested $25 million of his own money. An Auburn University agronomy professor advising the Bush administration on green energy endorsed his technology.

Alabama paper-and-pulp executive George Landegger and Mr. Khosla, the venture capitalist, separately invested millions in seed money into Cello and had plans to invest or lend more.

A lawsuit disputing the ownership stakes of investors produced Mr. Boykin's revelation, in a 2008 deposition, that he had never used inedible plant material such as wood chips or grass in his pilot plant, despite claims otherwise. Construction of his full-scale facility in rural Alabama moved forward anyway.

This year, Khosla representatives took samples of diesel produced at the new Cello plant and sent them off for testing. The results showed no evidence of plant-based fuel: Carbon in the diesel was at least 50,000 years old, marking it as traditional fossil fuel.

The EPA wasn't told about the test, and continued to rely on Mr. Boykin's original claims when it asserted in the Federal Register in May that Cello could produce 70% of the cellulosic fuel targets set by Congress that are due to take effect next year.

The jury returned a $10.4 million civil fraud and breach-of-contract verdict against the Alabama entrepreneur in favor of Mr. Landegger, one of the investors. Work on the plant has been suspended. Several weeks after the verdict was delivered, Mr. Boykin presented evidence that he had tested fuel from the plant and it did contain cellulosic material. He is seeking a new trial.

Mr. Boykin declined to comment, but his lawyer, Forest Latta, said his client denies committing fraud. The carbon testing, he said, reflected only an early stage quality-control test during startup trials. It would be premature to conclude, Mr. Latta said in an email, that Cello's fuel-making process is a failure. "This is a first-of-its-kind plant in which there remain some mechanical issues still being ironed out," he wrote.

Margo Oge, director of the EPA's office on transportation and air quality, says the agency is "looking into the whole case of Cello." Mr. Khosla declined to discuss Cello, but said he doubts the 2010 cellulosic fuel mandates can be met. "All projects, even traditional well-established technologies, are being delayed because of the financial crisis," he said in an interview.

from Green Hell Blog, 2009-May-20, by Steve Milloy:

Obama’s Economic Recovery ‘Advisory’ Board: Little dissent, lots of self-dealing on climate

President Obama’s so-called Economic Recovery Advisory Board held its first quarterly meeting today — it was a spectacle of the sort of self-dealing and corruption that we may rightly expect to become routine if cap-and-trade legislation passes.

After the meeting, CNBC’s Becky Quick interviewed ERAB board member John Doerr, head of the venture capital firm of Kleiner Perkins — that’s right, the very same Kleiner Perkins that has invested more than $1 billion in 40 cap-and-trade-dependent business ventures and that has Al Gore as a partner.

Doerr said that ERAB talked about the need for:

Doerr also told Quick that an EPA analysis showed that cap-and-trade would cost Americans less than $100 per year. (LOL!)

But we have no reason to believe that Doerr wouldn’t say and do absolutely anything to help ram through cap-and-trade legislation that would enable his firm to steal billions of dollars from consumers and taxpayers through bogus Al Gore-endorsed “green technologies.”

If you’re thinking that Doerr is only one voice on the ERAB and that less-biased heads will prevail, think again. Here are the other ERAB members and their interests/positions on cap-and-trade:

So of the 16 members of Obama’s Economic Recovery Advisory Board, only one (Feldstein) opposes cap-and-trade. At least six (Immelt, Owens, Doerr, Ferguson, Wolf, Phillips) expect direct financial benefits from cap-and-trade. The remaining members are either Obama supporters/employees or union representatives. Taxpayers, consumers and non-rent-seeking businesses have been left out in the cold.

Click here for the Quick-Doerr interview. Don’t miss Green Hell endorser Larry Kudlow’s anti-green fusillade at the end.

from the Wall Street Journal, 2009-May-21, web-posted 2009-May-20, by Joseph B. White with Judith Burns and Josh Mitchell contributing:

Industries are Grappling With New Bill on Climate

WASHINGTON -- The "American Clean Energy and Security Act" is one of the most ambitious efforts to re-engineer American social and economic behavior in decades, presenting risks and opportunities for a wide array of businesses from Silicon Valley to the coal fields of the Appalachians.

The legislation, better known as the Waxman-Markey bill, isn't yet law and has big hurdles to clear. A critical vote looms this week in the House Energy and Commerce Committee. But even with its chances of passage uncertain, the measure has become the basis for debate in Washington over how the U.S. should respond to pressure to slash its carbon emissions.

At a White House meeting Wednesday, members of President Barack Obama's Economic Recovery Advisory Board endorsed the central idea of the 900-plus page measure -- to cap carbon emissions and require businesses to buy tradeable permits to pollute. The measure could create "green" jobs in the U.S. while reducing harmful pollution that might be causing global climate change, executives in the group said. They included General Electric Co. Chief Executive Jeffrey Immelt, who sat next to the president.

Mr. Obama said he's "excited about the opportunity" to develop such a system and that "we've seen some great progress this week" in the U.S. House of Representatives.

The bill has been put forward by U.S. Reps. Henry A. Waxman, (D., Calif.) and Edward J. Markey (D., Mass.). It's [sic -AMPP Ed.] prospects look good in the House, but it could face a tougher time in the Senate. Still, the bill is the most viable yet to tackle climate change.

If adopted, it would confront big sectors of the economy with potentially costly challenges. The bill requires that emissions of carbon dioxide, methane and other gases linked to climate change be cut by 83% from their 2005 levels by 2050, long after most current members of Congress will have left office. The planned reduction is all the more ambitious considering that U.S. greenhouse gas emissions grew by 17% between 1990 and 2007.

To drive businesses and power generators to use less oil and coal and slash emissions of other gases, the Waxman-Markey bill would make businesses acquire pollution permits, which they could use to cover their emissions and sell any spares.

The current draft of the bill would give away up to 85% of those permits over the next 20 years. Still, instituting a cap and trade system would start the process of putting a price on emitting carbon dioxide. The bill's supporters say that is enough to start driving the technological innovation and investment needed to move away from fossil fuels.

"Putting a price on carbon is the most important thing we can do," Silicon Valley venture capitalist John Doerr told reporters after the meeting of the president's advisory board. Mr. Doerr, a partner at, Kleiner, Perkins, Caufield & Byers, is one of a number of tech figures who have invested some of the wealth they earned during the Internet boom in clean-energy ventures that could get a boost from the Waxman-Markey proposal.

Critics of Waxman-Markey, most of them Republicans but also some Democrats, say it is a tax by another name applied in a complex and costly way.

A Congressional Budget Office analysis of climate change policy estimated that price increases associated with a 15% cut in carbon dioxide emissions would cost the average U.S. household $1,600 a year. The CBO analysis said low income households would shoulder a larger burden, as would families in coal dependent regions such as the Ohio Valley.

Harvard University economics professor Martin Feldstein questioned during the meeting with Mr. Obama whether the price might be too high for U.S. consumers, but said giving away too many pollution credits to utilities could undermine the goal of reducing emissions.

"You have to raise the price to consumers to get them to cut back," Mr. Feldstein said. "I have a hard time understanding the give-away strategy."

Lawmakers say they would compensate consumers for the added burden through tax credits and direct government subsidies. The Waxman-Markey bill would use the states to funnel monthly payments to low-income households, defined as those eligible for food stamps or with gross income up to 150% of the poverty line.

But the Waxman-Markey bill is more than just cap and trade. The proposal would establish requirements that utilities buy at least 12% of their electricity from renewable sources such as windmills, solar panels and geothermal technology.

Another section promotes "large scale" programs to spur demand for electric vehicles with incentives for buying plug-in cars and building charging stations.

The proposed bill offers auto makers several forms of assistance to make the shift to lower-carbon cars. They include as much as $50 billion in loans under an Energy Department program to spur advanced vehicle development and up to $4 billion for subsidies to consumers who trade in older vehicles for more efficient models.

In addition, auto makers would get 3% of the free pollution allowances through 2017 and 1% from 2018 through 2025 -- tied to investments in electric vehicles and other advanced technology.

The proposal would offer rebates to spur demand for appliances that are not only energy efficient, but also come equipped with "smart grid" technology that would allow a dishwasher to know the most economical time of day to run based on variable electric rates. Retailers would get incentives to push highly efficient appliances to consumers.

The act would order the Department of Energy to see to it that building codes are amended to make new buildings 30% more efficient by 2010 and 50% more efficient by 2016. The act would even establish new efficiency standards for "portable light fixtures," also known as lamps.

from the American Scene, 2009-May-20, by Jim Manzi:

Waxman-Markey Cost-Benefit Analysis

There has been widespread agitation in the influential blogosphere for a cost-benefit analysis of the Waxman-Markey cap-and-trade proposal. This sure seems like a reasonable request to me, and you have to wonder why the sponsors and advocates of this bill – who are, after all, proposing an enormous commitment of resources – haven't provided one. So I tried to do a quick version of it. I have a longer and more complete version of this coming in the next National Review, but wanted to get the bones of the analysis out for discussion as rapidly as possible.

Background Analysis

According to the authoritative U.N. Intergovernmental Panel on Climate Change (IPCC), under a reasonable set of assumptions for global economic and population growth, the world should expect (Table SPM.3) to warm by about 2.8°C over the next century. Also according to the IPCC (page 17), a global increase in temperature of 4°C should cause the world to lose about 3 percent of its economic output. So if we do not take measures to ameliorate global warming, the world should expect to be about 3 percent poorer sometime in the 22nd century than it otherwise would be. This is very far from the rhetoric of global destruction. Because of its geographical position and mix of economic activities, the United States is expected (Table 3) to experience no net material economic costs from such warming through the end of this century, and to begin experiencing net costs only thereafter.

A government program to force emissions reductions to avoid some of these potential future losses would impose a cost of its own: the loss in consumption we would experience if we used less energy, substituted higher-cost sources of energy for fossil fuels, and paid for projects—which are termed “offsets”—to ameliorate the effect of emissions (an example would be planting lots of trees). It's complicated to estimate the cost of an emissions-reduction program, but the leading economists in this area generally agree that it would be large, and that we should simply let most emissions happen, because it would be more expensive to avoid them than to accept the damage they would cause. This makes sense, if you consider that most such plans (for example, Waxman-Markey) call for eliminating something like 80 percent of carbon dioxide emissions within the next 40 years or so. Even if the economy becomes more efficient over this period, such a quick transition away from our primary fossil-fuel sources will be expensive.

If a) the total potential benefit of emissions abatement is about 3 percent of economic output more than 100 years from now, b) we can avoid only some of this damage, and c) it's expensive to prevent those emissions that we can prevent, the net benefit of emissions reduction will likely be a very small fraction of total economic output. William Nordhaus, who heads the widely respected environmental-economics-modeling group at Yale, estimates (page 84) the total expected net benefit of an optimally designed, implemented, and enforced global program to be equal to the present value of about 0.2 percent of future global economic consumption. In the real world of domestic politics and geostrategic competition, it is not realistic to expect that we would ever have an optimally designed, implemented, and enforced global system, and the side deals made to put in place even an imperfect system would likely have costs that would dwarf 0.2 percent of global economic consumption. The expected benefits of emissions mitigation do not cover its expected costs. This is the root reason that proposals to mitigate emissions have such a hard time justifying themselves economically. (If interested, you can read much more about this here).

Costs vs. Benefits of Waxman-Markey

Let's start with the costs. The Environmental Protection Agency (EPA) has done the first cost estimate for Waxman-Markey. It finds (page 17) that by 2020 Waxman-Markey would cause a typical U.S. household to consume about $160 less per year than it otherwise would, and about $1,100 less per year by 2050 (before any potential benefits from avoiding warming). That doesn't sound like the end of the world, but this cost estimate is based on a number of assumptions that seem pretty unrealistic, to put it mildly.

First, it assumes that every dollar collected by selling the right to emit carbon dioxide will be returned to taxpayers through rebates or lowered taxes. Waxman-Markey establishes this intention but doesn't (as of the time I'm writing this) describe how it would be achieved, which reflects the political difficulty of achieving it. Second, it assumes no costs for enforcement and other compliance measures, which would be awfully nice. Third, it assumes that large numbers of foreign offsets will be available for purchase; without these, costs would be far higher. Fourth, it assumes that the rest of the world will begin similar carbon-reduction programs. Lack of such foreign action would either increase U.S. costs or risk a trade war if we tried to compensate for lack of international cooperation with targeted tariffs. Fifth, it assumes that there will be no exemptions or other side deals—that is, no economic drag created by the kind of complexity that has attached to every large, long-term revenue-collection program in history. And so on.

The EPA forecast is something like an estimate of the pure loss in economic productivity from replacing some fossil fuels with less economically efficient fuels or conservation in a laboratory setting; in the real world, expected costs are far above 0.8 percent of economic consumption by 2050. The EPA does not forecast costs beyond 2050.

Remember that the U.S. should not expect any net economic damage from global warming before 2100. That is, the bill's benefits would accrue to U.S. consumers—who are also bearing its costs—sometime in the next century. The EPA underestimate has costs rising from zero to 0.8 percent of consumption between now and 2050, and offers no projection beyond that year; but to what level would costs rise over the more than 50 years between 2050 and the point in 22nd century when we might actually expect some net economic losses from global warming? The answer is likely to be much higher.

Now consider the benefits. Climatologist Chip Knappenberger has applied standard climate models to project that, under the scenario for global economic and population growth referenced above (A1B), Waxman-Markey's emissions reductions would have the net effect of lowering global temperatures by about 0.1°C by 2100. Remember that the estimated cost of a 4°C increase in temperature (40 times this amount) is about 3 percent of global economic output. Assume for the moment that global warming has the same impact on the U.S. as a percentage of GDP as it does on the world as a whole (an assumption that almost certainly exaggerates the impact on the U.S.). A crude estimate of the U.S. economic costs that Waxman-Markey would avoid sometime later than 2100 would then be about one-fortieth of 3 percent, or about 0.08 percent of economic output. This number is one-tenth of 0.8 percent, the EPA's estimate of consumption loss from Waxman-Markey by 2050. To repeat: The costs would be more than ten times the benefits, even under extremely unrealistic assumptions of low costs and high benefits. More realistic assumptions would make for a comparison far less favorable to the bill.

I've had to rely on informal studies and back-of-envelope calculations to do this cost/benefit analysis. Why haven't advocates and sponsors of the proposal done their own? Why are they urging Congress to make an incredible commitment of resources without even cursory analysis of the net economic consequences? The answer should be obvious: This is a terrible deal for American taxpayers.

Two Potential Objections

One potential objection to my analysis is that the bill is part of a global drive for all countries to reduce emissions, and that the U.S. needs to “show leadership.” By this logic, we should ascribe much larger benefits to the Waxman-Markey bill—specifically, the benefits to American consumers of the whole world's engaging in similar programs. There are two obvious problems with this argument, however. First, ascribing all of the benefits of a global deal to reduce emissions to a specific bill that does not create such a commitment on the part of any other countries is loading the dice. The benefit we should ascribe to the bill is rather that of an increase in the odds of such a global deal. But would Waxman-Markey actually increase them, or would it decrease them instead? Whenever one nation sacrifices economic growth in order to reduce emissions, the whole world can expect to benefit, because future temperature should decrease for the entire globe. Every nation's incentive, therefore, is to free ride on everybody else. Our most obvious leverage with other emitting nations would be to offer to reduce our emissions if they reduced theirs. Giving up this leverage and hoping that our unilateral reductions would put moral pressure on China, Russia, Brazil, and similar countries to reduce their emissions reveals a touchingly sunny view of human nature, but it strikes me as a poor negotiating strategy. Second and more fundamentally, even if the whole world were to enact similar restraints on emissions, the cost / benefit economics would still not be compelling, for the reasons outlined at the beginning of this post.

A second and more serious potential objection to my analysis is that while Waxman-Markey may not create benefits if the projections I offered above turn out to be accurate, climate science is highly inexact, and the bill is an insurance policy against higher-than-expected costs. Now, climate and economics modelers aren't idiots, so it's not as though this hadn't occurred to them. Competent modelers don't assume only the most likely case, but build probability distributions for levels of warming and associated economic impacts (e.g., there is a 5 percent chance of 4.5°C warming, a 10 percent chance of 4.0°C warming, and so on). The economic calculations that compose, for example, the analysis by William Nordhaus that I cited earlier are executed in just this manner. So the possibility of “worse than expected” impacts means, more precisely, the possibility of “impacts worse than those derived from our current probability distribution.” That is, we are concerned here with the inherently unquantifiable possibility that our entire probability distribution is wrong.

This concept has been called, somewhat grandiosely, the “Precautionary Principle.” Once you get past all the table-pounding, this is the crux of the argument for emissions abatement. It is an emotionally appealing political position, as it easy to argue that we should reduce some consumption now to head off even a low-odds possibility of disaster. The most compelling version of this argument, by far, has been presented by Martin Weitzman. You can read my detailed response here (note that this was to a slightly earlier edition of the paper). The essence of my response is that in order to drive a decision, Weitzman must take his argument from the conceptual idea of a “fat-tailed distribution” of danger to a numerical estimate of risk. He recognizes that the logic of his argument entails this. In his article, he ends up having to do the kind of armchair climate science that has been the bane of the “global warming is all a hoax” set. He uses a couple of ice bore studies to develop his own probability distribution for potential warming that calls for a 1% chance of 22.6C or more of warming by 2100. To put this in perspective, a 22.6C increase in the earth's temperature would mean that the average global year-round temperature would be the same as summertime Death Valley is today. If you could convince me that there was a reliably-quantified 1% chance of this happening, you wouldn't need all of the mathematical formalism of Weitzman's paper – I'd be the biggest emissions mitigation proponent on earth. The problem is that the IPCC has already built a distribution of potential temperature changes (see Figure 10.28, page 808) that looks nothing like this. If you don't want to believe me, read Cass Sunstein's book about why the Precautionary Principle, even in sophisticated form, is a very bad decision rule.

In the end, clarity about costs and benefits is the enemy of Waxman Markey. It is hard to get around the conclusion that it can not be justified rationally based on the avoidance of climate change damages.

from the Los Angeles Times, 2009-May-20, by Jim Tankersley, with Christi Parsons, Jim Puzzanghera and Richard Simon in the Washington bureau contributing:

Behind the scenes of the auto emissions deal

The agreement for a strict nationwide standard for U.S.-sold cars by 2016 took a mix of firm demands and major concessions from the government. Obama sees the talks as a 'template for more progress.'

Reporting from Washington -- It had taken weeks of hardball negotiations, but on Sunday afternoon, White House officials thought everything was falling into place. In less than 48 hours they would unveil a landmark deal with U.S. automakers to impose sharply higher fuel-efficiency standards on new cars and trucks.

A senior Ford executive said the company had run the numbers again and concluded it might not survive if it accepted the deal. If Ford pulled out, it would mean a major setback for two of President Obama's signature goals -- combating global warming and reducing the nation's appetite for foreign oil.

In the end, with more number-crunching and another application of White House pressure, Ford did not bolt. And when Obama stepped into the Rose Garden on Tuesday afternoon to announce the deal with the auto industry and the state of California, he hailed it as a road map for progress on other knotty issues.

Yet the near-collapse of the effort was a dramatic reminder of how hard it can be to break through years of stalemate and build a consensus for action on a problem that has pitted some of the country's most powerful interests against each other.

"Everybody at some point, from California to the companies, had a moment of going, 'Uh-oh, what am I thinking?' " said Carol Browner, director of the White House Office of Energy and Climate Change Policy.

The push to keep the automaker on board involved a key official on a cellphone who mapped strategy while huddled in the relative quiet of a bathroom at the Washington Nationals baseball stadium. Another broke away from a birthday party in New York.

What made the agreement possible was a combination of unyielding demands by the federal government on some points and a willingness to make major concessions on what it considered smaller ones, said officials involved who requested anonymity when discussing the negotiations. With the U.S. auto industry on the brink of collapse, its leaders came to see that they could no longer forestall action -- and would be better off with a single, strict national rule than a state-by-state patchwork.

"We were able to convince everybody to keep their eye on the ball -- a national standard -- and work on the way we get there," said Browner, who spearheaded the effort.

Obama basked in the success on Tuesday. "All the people who have gathered here today . . . they've created the template for more progress in the months and years to come," he said. "Everything is possible when we're working together, and we're off to a great start."

The agreement announced at the White House will lead to a 30% reduction in carbon dioxide and other emissions by 2016 from vehicles sold in the U.S.

To meet that standard, according to the White House, new vehicles sold in the U.S. seven years from now will have to average 35.5 mpg, up from 25 mpg today. The agreement, coupled with increased fuel-efficiency requirements Congress approved in 2007, would add $1,300 to the price of a new car in 2016, the administration estimated.

The plan does not spell out specific mileage requirements, but effectively would require them by capping the greenhouse gas emissions that scientists blame for global warming. The new limits are projected to reduce U.S. oil consumption by about 5% a year from 2011 to 2016. The nation currently uses about 7.1 billion barrels a year.

As the deal was being crafted, domestic and foreign carmakers trooped throughout the month of April to the Eisenhower Executive Office Building. Administration officials greeted them with a message: We're setting national limits on climate-altering emissions from cars and trucks. The limits aren't negotiable. Tell us what you need to meet them.

One by one, 10 automakers signed on -- after securing promises to make the limits more flexible. A Ford spokesman said the company had "worked closely with the administration to make sure we understood the agreement."

So did California, which since 2002 has sought to impose tougher emissions standards on its own. The Obama plan would achieve comparable cutbacks, but give automakers more time to adapt. As a result, the automakers agreed to drop their legal challenges to California's standards.

The United Auto Workers union also agreed to the administration's plan, after being assured that the rules wouldn't push factory jobs overseas.

On Tuesday, Ford Chief Executive Alan Mulally stood by Obama's side. "The president is going to continue to work toward an integrated energy policy in the United States, and the consumer is going to be involved," Mulally told reporters at the White House. "We're all going to move forward, I believe, on this journey to energy independence, energy security and long-term stability."

The deal, which does not require congressional approval, will unify an array of Environmental Protection Agency and Department of Transportation regulations. To complete it, the administration will need to finalize several pending decisions, at which point automakers will drop their lawsuits against California's proposed emissions limits.

Many Republicans criticized the agreement, saying it would kill jobs, raise car prices and reduce consumer choices.

Rep. John Campbell (R-Irvine) said automakers only signed on "because they're owned by the government" -- a reference to Obama's recent moves to prop up troubled Chrysler and General Motors.

"These exact companies were fighting this . . . tooth and nail six months ago, and now suddenly they love it?" Campbell said. "No, they don't love it. This is what this administration is doing: This administration is autocratically forcing people to do whatever it wants."

California Gov. Arnold Schwarzenegger, a high-profile supporter of the agreement, suggested Tuesday that the federal financial assistance had given Obama's team leverage to force automakers to accept the emissions limits.

"All of a sudden, the car manufacturers needed . . . the taxpayers' money," he said. "So in order to get that help, I'm sure that President Obama said: 'OK . . . here's what you need to do.' "

from CNBC.com, 2009-May-20, by Dennis Kneale:

New CAFE Menu Will Give Detroit Heart Attack

When you're as wildly popular as President Obama, who needs Congress? So it is that the rookie in the White House imposes a go-green-or-die fiat on the filthy and woeful auto industry.

The White House's new and tougher gas-mileage rules force a 42 percent increase in new cars' miles-per-gallon, and a 30 percent rise for trucks, by 2016. All to curb gasoline usage by 1.6 percent—by the year 2020.

Will someone please tell me what the hell we're thinking here?

This amounts to one of the most severe and sweeping enviro-reforms ever mounted by government. And look Ma—no hands in Congress had to lift a finger to vote. This is all bureaucracy, baby, courtesy of the Environmental Protection Agency and the U.S. Department of Transportation.

Obama said yesterday that the new CAFE (Corporate Average Fuel Economy) rules would fuel Detroit on a (dubious) crusade to develop and sell greener cars. (Ahem, at a time of still-cheap gasoline.)

It will mean "certainty" for the Motor City, Bam says. Yeah—the certainty of a heart attack.

This extra burden comes at the worst possible time for GM, Chrysler and Ford. And it won't work—it just looks good. Which kinda sums up a lot of new moves coming out of Washington these days. We debated this last night on CNBC Reports.

The president proudly unveiled his new diktat yesterday, flanked by a gaggle of grinning yes-men: governors and greenies and execs from carmakers American and foreign.

The GM and Chrysler guys had no choice but to be there, wincing beneath the grins: They just guzzled through $25 billion (CHK) in TARP taxpayer loans in a last-gasp bid to survive. Would they ever dare differ with Bam on his bid to annex their product-design labs—especially when they need billions more?

So let me point out some fatal flaws in this green decree:

I know, guys: We gotta fix this fuel problem sooner rather than later, we have to end our reliance on foreign oil. Blah blah blah. Sure we do—but not by Presidential fiat, not by way of a self-perpetuating bureaucracy. We need a free-market solution: Make better, cheaper, safer lower-fuel cars that we want to buy, and we're happy to start driving them.

Not because Bam said we should, but because we choose to do so.

from KeithHennessey.com, 2009-May-19, by Keith Hennessey:

Understanding the President's CAFE announcement

(Editorial note: I was doing so well moving to shorter posts. I fail miserably in achieving that goal here. I went the comprehensive route instead. I promise to return to shorter posts in the future. Buckle up – this is a long ride. I hope you find it's worth it.)

(Update: There’s an important correction in #3 below. The estimated job loss for the option I think most closely approximates the Administration’s proposal should be about 50,000 over five years, rather than about 150,000 over five years. I apologize for the error.)

There is not yet much data available on the President's CAFE announcement. Luckily, we have a huge base of analysis that the National Highway Traffic Safety Administration (NHTSA) did in 2008 that allows us to infer a lot from what was announced. Here are the specific data points we have from the President's announcement:

These fuel standards are the implementation of a law proposed by President Bush in January 2007, and passed by (a Democratic majority) Congress and signed by President Bush in December, 2007. The Bush Administration developed rules to implement the law and brought them right up to the goal line, but did not finalize them before the end of the Administration. The Obama Administration has now significantly modified the Bush rules.

Technically the Administration is today announcing that they will release a new proposed rule. While the news coverage makes it sound like this is a done deal, this is the beginning of a regulatory process, not the end. Still, the starting point is extremely important.

In developing the Bush proposal, NHTSA developed six options. I will show you four of those. Conveniently, what we know about President Obama's proposal lines up almost perfectly with one of those options. This allows us to use NHTSA analysis of this option to make some initial estimates of the effects of the President's new proposal. As always, you can click on the graph to see a larger version.

CAFE comparison


This graph shows the fuel economy requirements, in miles per gallon (mpg), for a nationwide fleet average. In actuality there will be two standards, one for cars and one for light trucks (SUV's are light trucks). It gets even more complex than that, because the standard adjusts for vehicle footprint (the shadow made by the vehicle when the sun is directly overhead). This incorporates an element of vehicle size in the requirement as a proxy for safety. If everyone just moved to tiny little vehicles, we would get much better fuel economy, but we would also have more highway fatalities. So the NHTSA methodology balances fuel efficiency and safety. The “S” in NHTSA stands for Safety. For reasons that I fail to understand, safety sometimes gets taken for granted in the Beltway policy debate relative to fuel efficiency, environmental benefits, and economic costs.

The four lines are from NHTSA's analysis for the rule that we (the Bush Administration) did not quite finalize:

The purple dot is what we know about the Obama proposal. We only have a 2016 figure, which is conveniently right in line with the TC=TB option analyzed by NHTSA last year. So I'm going to make an assumption that the Obama proposal roughly matches this blue line in the intervening years. When I compare the separate numbers we have from the Administration for cars and light trucks with the six NHTSA options, they line up in a similar fashion with the TC=TB option, reinforcing my view that this is a solid assumption. This means I will use the NHTSA estimates of the TC=TB blue line option as a proxy for the effects of the Obama proposal. Technically, someone can quibble that it's not precisely identical, but until I see data to the contrary, that's just quibbling.

This means the Administration can dismiss the entire analysis that follows by saying their proposal differs from the TC=TB option. I cannot disprove such a claim if they make it, but my response would be, “How different? Show me.” I feel quite comfortable using this option for my own analysis, and will do so until presented with an alternate set of numbers by the Administration. (I helped coordinate much of this policy process for President Bush in 2007 and 2008.)

Here are ten things you might want to know about President Obama's new fuel economy proposal. I will reference some tables and analysis from the NHTSA analysis done for the near-final Bush rule. This is a long list, so this summary will let you skip around as you like:

  1. It's aggressive.
  2. Rather than maximizing net societal benefits, this proposal raises the standard until (total societal benefits = total societal costs), meaning the net benefits to society are roughly zero. This is not an invalid framework for making a policy decision, but it is unusual. It represents a different value choice.
  3. NHTSA estimated that a similar option would cost almost 150,000 50,000 U.S. auto manufacturing jobs over five years.
  4. NHTSA guesses that under a similar option, manufacturers will make huge increases in dual clutches or automated manual transmissions, a big increase in hybrids, and medium-sized increases in diesel engines, downsizing engines, and turbocharging.
  5. It will have a trivial effect on global climate change.
  6. The national standard = the California standard (roughly).
  7. The auto manufacturers got rolled by the Governator.
  8. Granting the California waiver means California has leverage for next time.
  9. In Washington, EPA is now in the driver's seat, not NHTSA.
  10. Today's action will accelerate EPA's regulation of greenhouse gas emissions from stationary sources. While Congress is futzing around on a climate change bill, EPA is getting ready to bring their “PSD” monster to your community soon.

1. It's aggressive.

You can see this from the graph above. Within the Bush Administration we considered a range of options that would raise average fuel economy by between 1% per year and 4% per year. Our near-final rule would have raised this combined car/truck average about 4.7% per year from 2010 through 2015. My math shows that the Obama proposal would raise this same measure about 5.8% per year through 2016. That's really aggressive. (In this post all years are Model Years for vehicles.)

Note: The press is reporting that Team Obama says they're doing about +5% per year. They're measuring starting in 2011. I use 2010 so I can compare Bush and Obama.

2. Rather than maximizing net societal benefits, this proposal raises the standard until (total societal benefits = total societal costs), meaning the net benefits to society are roughly zero. This is not an invalid framework for making a policy decision, but it is unusual. It represents a different value choice.

The NHTSA analyses look at a range of benefits to society, including economic and national security benefits from using less oil, health and environmental benefits from less pollution, and environmental benefits from fewer greeenhouse gas emissions (this is new). They also consider the costs, primarily from requiring more fuel-saving technologies to be included by manufacturers. NHTSA assumes these increased costs are passed on to consumers. More expensive cars mean that fewer cars are sold, which means that fewer auto workers are needed. NHTSA calculates economic costs to car buyers and to society as a whole, and job losses among U.S. auto workers.

A standard rule-making methodology is to look at all the costs to society, and all the benefits, and make them comparable (by converting them into dollar equivalents). You then ask, “What policy will maximize the net benefit to society as a whole, taking into account all costs and benefits?” This is the approach NHTSA used in building the yellow line.

The blue line represents a different approach. (See the TC=TB line on Table VII-6 on page 613 of the NHTSA analysis.) You take the same analysis of costs and benefits, but instead ask, “How much can we increase fuel economy before the costs to society as a whole outweigh the benefits to society as a whole?” This results (in theory) in no net benefit (and no net cost) to society, but allows you to maximize the fuel economy subject to this constraint.

The Obama Administration's numbers are in line with this latter approach. It's not wrong. The Obama approach is quite different. It represents a different value choice, in which a higher priority is placed on the benefits of increased fuel economy, and lower priorities are placed on increased costs to car buyers and job loss in the auto industry.

3. NHTSA estimated that a similar option would cost almost 150,000 50,000 U.S. auto manufacturing jobs over five years.

Update: I was sloppy and missed the note on page 585 which said that table VII-1 shows cumulative job losses. Thus, the total over five years is 48,847 (which I’ll write as “almost 50,000″), and not the 148,340 I earlier calculated. I apologize for the error, and thank James Kwak for catching my mistake.

See Table VII-1 on page 586 of the NHTSA analysis. NHTSA estimated that the TC=TB option, which I'm using as a proxy for the Obama plan, would result in the following job losses among U.S. auto workers:

MY 2011

MY 2012

MY 2013

MY 2014

MY 2015

5-yr total

8,232

24,610

30,545

36,106

48,847

148,340

Compared to the Bush draft final rule, this is 118,000 37,000 more jobs lost.

Since I know this table is inflammatory, I will anticipate some of the responses:

4. NHTSA guesses that under a similar option, manufacturers will make huge increases in dual clutches or automated manual transmissions, a big increase in hybrids, and medium-sized increases in diesel engines, downsizing engines, and dialing back turbocharging.

NHTSA does a detailed analysis of the costs of new technologies to improve fuel efficiencies, and they talk to the manufacturers and examine their product plans. They then guess what technology changes the manufacturers might make to comply with a higher fuel efficiency standard. Here are their estimates for increased penetration in MY 2015 for various technologies under the TC=TB / Obama proxy option. This is from Table VII-7:

Baseline

TC = TB

(Obama proxy)

Increased penetration
Dual clutch or Automated manual transmission

8%

60%

+52%
Hybrid electric vehicles

0%

24%

+24%
Turbocharging & engine downsizing

11%

24%

+13%
Diesel engines

0%

12%

+12%
Stoichometric gasoline direct injection

30%

39%

+9%

It would be great it if a commenter could educate us a little on these technologies.

5. The proposal will have a trivial effect on global climate change.

I always chuckle when elected officials boast about the number of tons of carbon that a policy proposal will not inject into the atmosphere. The White House is doing so today, emphasizing “a reduction of approximately 900 million metric tons in greenhouse gas emissions.” That sounds like a a lot, but who the heck knows?

We are fortunate that NHTSA analyzed the climate effects of all six options in terms more amenable to our comprehension. Here are their estimates for baseline, the Bush option, and the TC=TB (Obama proxy) option. This data is from Table VII-12 in the NHTSA analysis:

CO2 concentration (ppm)

Global mean surface temperature increase (deg C)

Sea-level rise (cm)

2030

2060

2100

2030

2060

2100

2030

2060

2100
Baseline

455.5

573.7

717.2

0.874

1.944

2.959

7.99

19.30

37.10

Bush

455.4

573.2

716.2

0.873

1.942

2.955

7.99

19.28

37.06

TC=TB

(Obama proxy)

455.4

573.0

715.6

0.873

1.941

2.952

7.99

19.27

37.04

OK, this still doesn't mean a lot to me. Let's take some more data from the same NHTSA table, and see the change from the baseline of not raising fuel economy standards at all. Now we can see the direct climate benefits of these proposals:


CO2 concentration (ppm)

Global mean surface temperature increase (deg C)

Sea-level rise (cm)

2030

2060

2100

2030

2060

2100

2030

2060

2100

Bush

–.1

-.5

-1.0

-.001

-.002

-.004

0

-.02

-.04
TC=TB (Obama proxy)

–.1

–.7

–1.6

-.001

-.003

-.007

0

-.03

-.06

Ah ha! This is useful information. As you can see, the effects are trivially small:

Hmm. That's not too much, especially when you consider this is the policy that will affect the #2 source of greenhouse gas emissions in our economy. (#1 is power production.)

In anticipation of some pounding by the climate change crowd:

Again, the point is not the precise estimates. It's the order of magnitude. Please don't tell me this model is flawed. If you disagree with these calculations or this model, give me some numbers you think are better, and that lead to a different conclusion.

Imagine if the President had instead said today, “This new fuel economy and greenhouse gas emissions rule will slow the increase in future global temperature seven thousandths of a degree Celsius by the end of this century, and it means the sea will rise six tenths of a millimeter less than it otherwise would over the same timeframe.” It loses some of its punch, no?

Similarly, when the Supreme Court pushed in Massachusetts v. EPA toward regulating greenhouse gases from new cars and trucks to protect the public health and welfare from “endangerment,” I wonder if they understood that an aggressive proposal would reduce the future sea level increase by 0.6 mm?

6. The national standard = the California standard (roughly).

Technically, the Administration will be setting two standards: one for fuel economy, and another for CO2 emissions from tailpipes. In theory, the two will (basically) match up, hand-waving past a lot of second-order things like flexible fuel vehicle credits and new vehicle air conditioning standards.

During the Bush Administration there was a tussle between California and the federal government. California wanted a waiver to be able to set their own standards for CO2 emissions from cars and light trucks. Another 13 or so States wanted to follow a new California standard. The proposed California standard was significantly more aggressive than anything discussed in Washington.

We argued that having multiple emissions standards would be inefficient. Auto manufacturers would then have either to make cars to meet two different standards, or just dial up the fuel efficiency on all vehicles, so that the California standard would become the de facto national standard.

The President resolved this today by (basically) setting one national standard for fuel economy, and a roughly parallel standard for CO2 tailpipe emissions, that approximate the higher California standard. California is happy that they got their higher numbers. The auto manufacturers avoid the inefficiencies of multiple standards, while having to eat (actually, pass on to customers) the higher costs of making even more fuel efficient vehicles.

7. The auto manufacturers got rolled by the Governator.

The heads of several auto manufacturing firms stood with the President today and smiled. They lost this fight. They pushed incredibly hard during the 2007 legislative battle, and during the subsequent regulatory process, for a fuel economy standard that rose about 2% per year. They dug in hard against a growth rate greater than 3% per year, and told us that 4% per year would destroy them. Our near-final rule averaged about 4.7% per year. The Obama rule averages about 5.8% per year. Either way, this is way, way more than the auto manufacturers wanted.

They had no leverage, of course, and an outcome similar to this was predictable after the November election. So they're putting the best face they can on it. Interestingly, the press statement from Ford CEO Alan Mulally does not say that he endorses the specific numbers proposed by the President, but instead (emphasis is mine):

Today's announcement signals the achievement of a crucial milestone – an agreement in principle on a national program for increased fuel economy and reduced greenhouse gases. …

This national program will allow us to move forward toward final regulations that all stakeholders can support. We salute the cooperative efforts of the Obama Administration, the state of California, environmental groups and others that played a constructive role in this process.

The framework of the national program will give us greater clarity, certainty and flexibility to achieve the nation's goals. We will continue to work with the federal agencies to finalize the standards that we are committed to meeting.

Tip for reporters: Ask Ford (and the other manufacturers) if they support the specific numbers proposed by the President today. The statement above is trying to leave Ford wiggle room to argue for smaller numbers in the rulemaking process. If the auto manufacturers wiggle, then you have a repeat of the situation from last week's health care announcement.

And of course, 1-2 of the U.S. auto manufacturers are now controlled by the U.S. government.

8. Granting the California waiver means California has leverage for next time.

As I understand it, the Administration is technically granting California its EPA waiver, and California has agreed not to invoke it for this process (MY 2011 – MY 2016). Assuming the waiver doesn't get un-revoked (can it be?) by a future Administration, this means that next time around California will begin the process with the authority to set its own tailpipe emissions standard.

This means that, when we do this again in about five years, California holds all the cards. To quote the Governor in another context (wait for it), “I'll be back.” California will have leverage to set its own standard, which means they can again dictate the national standard. The Obama Administration has moved the primary decision-making locus for future vehicle fuel efficiency rules from Washington DC to Sacramento.

9. In Washington, EPA is now in the driver's seat, not NHTSA.

The Administration has said there will be two rules. NHTSA will set a fuel economy rule, and EPA will set a tailpipe emissions rule. We know that EPA will always be more aggressive than NHTSA. This means that, to the extent Washington remains involved in future standards (see #8 above), the primary decision-maker becomes EPA rather than NHTSA, since auto manufacturers will have to comply with the more aggressive of the two. NHTSA does not become irrelevant, but the bureaucratic strength is definitely shifting.

This bureaucratic power shift suggests a higher priority will be placed in the future on environmental benefits, and a lower priority on economic costs and safety effects, as we see with today's proposal.

10. Today's action will accelerate EPA's regulation of greenhouse gas emissions from stationary sources. While Congress is futzing around on a climate change bill, EPA is getting ready to bring their “PSD” monster to your community soon.

EPA is in the midst of taking comments on an “endangerment finding” that is a huge deal in the climate change policy world. If the EPA Administrator finds that greenhouse gas emissions from new cars and trucks “endanger public health and welfare,” then it starts a regulatory process. It appears the President is prejudging the result of this regulatory comment process: “… the Department of Transportation and EPA will adopt the same rule…”

As a former colleague has taught me, a proposal to regulate greenhouse gases (under section 202 of the Clean Air Act) would greatly accelerate when greenhouse gases become “subject to regulation” under the Clean Air Act. This would trigger ramifications that reach far beyond cars and trucks. As early as this fall, greenhouse gases could become “regulated pollutants” under the Clean Air Act. Once something becomes a “regulated pollutant,” a whole bunch of other parts of the Clean Air Act kick in, and EPA is off to the races in regulating greenhouse gases from a much (much) wider range of sources, including power plants, hospitals, schools, manufacturers, and big stores.

One of the scariest elements of this is called the “Prevention of Significant Deterioration” permitting system. In effect, EPA could insert itself (or your State environmental agency) into most local planning and zoning processes. I will write more about this in the future. It terrifies me.


Thanks for making it to the finish line!

from the Economist, 2009-Mar-21:

Cap and trade, with handouts and loopholes

The first climate-change bill with a chance of passing is weaker and worse than expected

AL GORE calls it “one of the most important pieces of legislation ever introduced in Congress”. Joe Barton, a Republican congressman and global-warming sceptic, says it will put the American economy in a straitjacket. For something that practically no one has read, the American Clean Energy and Security Act provokes heated debate. It would establish a cap-and-trade system for curbing carbon-dioxide emissions, thus transforming the way Americans use energy.

President Barack Obama has long argued that America should join Europe in regulating planet-cooking carbon. But he has left the details to Congress. And the negotiations to craft a bill that might actually pass have not been pretty. The most straightforward and efficient approach to reducing carbon emissions—a carbon tax—was never seriously considered. Voters do not like to hear the word “tax” unless it is followed by the word “cut”.

So Mr Obama proposed something very similar to a carbon tax, albeit slightly more cumbersome. Industries that emit carbon dioxide would have to buy permits to do so. A fixed number of permits would be auctioned each year. The permits would be tradable, so firms that found ways to emit less than they were entitled to could sell some of their permits to others. The system would motivate everyone to reduce emissions in the most cost-effective way. It would raise energy prices, which is the point, but it would also raise hundreds of billions of dollars, most of which Mr Obama planned to give back to voters. Alas, that plan looks doomed.

On May 15th Henry Waxman and Edward Markey, the Democratic point-men on climate change in the House of Representatives, unveiled a bill that would give away 85% of carbon permits for nothing, with only 15% being auctioned. The bill's supporters say this colossal compromise was necessary to win the support of firms that generate dirty energy or use a lot of it, and to satisfy congressmen from states that mine coal or roll steel.

Giving away permits creates several problems. First, it generates no money, thereby royally messing up Mr Obama's budget. Second, it means that the permits go not to those who value them most (as in an auction) but to those whom the government favours. Under Waxman-Markey, electricity-distributors would get the largest share, with the rest divided between energy-intensive manufacturers, carmakers, natural-gas distributors, states with renewable-energy programmes and so on. Oil firms, with only 2% of the permits, feel hard done by. But most polluters, having just been promised hundreds of billions of dollars' worth of permits for nothing, are elated. So it is not just the owners of ski resorts and businesses with negligible carbon footprints that are queuing up to praise the bill. Duke Energy, a power generator with lots of coal-fired plants, is also enthusiastic.

The grand handout to shareholders is meant to last until around 2030, by which time all permits will be auctioned. In the meantime, the bill's supporters say that consumers will be protected from higher energy prices because the largest chunk of the free permits will go to tightly regulated electricity distributors. Regulators can simply order these firms to keep prices low. Problem solved.

Not so, says Alan Viard, an analyst at the American Enterprise Institute, a conservative think-tank. If electricity is cheap, Americans will buy more of it, generating more emissions than would otherwise have been the case. Other industries will accordingly have to cut their emissions more, since there are a fixed number of permits. The cost of this will be passed on to consumers. Overall, ordinary Americans will endure price hikes just as severe as they would have under Mr Obama's plan, while receiving far less compensation. Mr Viard likens giving permits to polluters to handing the proceeds of a tobacco tax to the shareholders of Philip Morris.

Another problem with Waxman-Markey is its complexity. At 932 pages, it is half as long again as an already-bloated previous draught. It includes a dizzying array of handouts, mandates and technical standards for everything from hot-food-holding cabinets to portable spas. It allows for a huge increase in “offsets”—where a polluter pays someone else to stop polluting instead of curbing his own emissions. These are open to abuse, as Europe's experience shows. There is little to stop foreign factories from starting to pollute just so that someone will pay them to stop.

Among environmentalists, support for the bill varies. Some denounce it for doing less to curb greenhouse gases than was once promised. It aims to cut emissions by 17% below the level in 2005 by 2020, instead of 20%. Greenpeace's American arm says it cannot support the bill in its current state. Other greens reckon that if this is the strongest bill that can pass, the best idea is to pass it now and tighten it later.

That is the most likely outcome, though far from certain. Mr Waxman wants his bill to pass through the House energy committee this week. Republicans such as Mr Barton could slow it down by offering hundreds of amendments or forcing it to be read aloud. (Mr Waxman has hired a speed-reader, just in case.) But they probably do not have enough votes to stop it, either in committee or when it eventually comes before the full House.

The next step will be the Senate, where the minority has more power. It is hard to predict what will happen there. Republicans plan to berate the bill as both a job-destroyer and a handout to big business. Some will also argue that it will make little difference to the climate if China and India do not also curb their emissions.

The bill's supporters retort that both countries will come on board only if America sets a good example. Time is running out before the big global climate conference in Copenhagen in December. If the United States does not have a cap-and-trade law in place by then, the chance of a global agreement will plummet. The bill may be imperfect, says Steve Tripoli of Ceres, a green business group, but having no bill at all would be unthinkable.

Meanwhile, Mr Obama continues to attack climate change from other angles. On May 19th he announced that he would impose tougher fuel-efficiency standards. Carmakers will have to produce vehicles that go eight miles farther on a gallon of petrol by 2016. Cars must eke out 39 miles (63km) per gallon, on average; light trucks must manage 30 miles. Carmakers, some of whom would be bankrupt if Mr Obama was not pumping them full of taxpayers' money, meekly applauded. In the past an agreement such as this would have been thought impossible, the president crowed.

Mr Obama admitted that more fuel-efficient cars might cost more. But he promised that motorists would save thousands of dollars by cutting their fuel bills. In fact, they can already cut their fuel bills by buying smaller cars, but most choose not to. Mr Obama could discourage petrol use more directly and efficiently by taxing the stuff, but that would be unpopular. Ideally, politicians who want to save the planet would be honest with voters about how much this will cost. But America's leaders do not seem to think Americans are ready for straight talk about energy.

from the Wall Street Journal, 2010-Jan-15, by Holman W. Jenkins Jr.:

Keep on Truckin', Detroit
The domestic auto makers' fuel-economy games start anew—this time with taxpayer help.

What a shocker that GM reportedly plans to invest $1 billion to launch new versions of its big, fuel-guzzling pickups and SUVs. Does this mean the whims of the Obama administration can't be expected to trump economic reality after all, which would be a terrible precedent for health care?

GM's surprise, of course, is no surprise, unless you live on some faraway world where the visions of the Sierra Club prevail. Demand for pickup trucks was said to "collapse" during the recession and home-building slump, but sales of all vehicles collapsed. In good years and bad, the two top-selling vehicles in the U.S. have almost always been Ford and Chevy pickups, with the Dodge pickup somewhere in the top five or 10. That hasn't changed.

Out of bankruptcy and under new management, GM naturally wants to survive and prosper. Just as naturally, it intends to invest in the vehicles that traditionally have generated its best sales and earned its biggest profits, even as management flaunts teensy euro cars and electric vehicles at this week's Detroit auto show.

GM says it has new ideas on how to build its large trucks while still meeting Washington's tough new fuel-economy standards, but don't let the spin kid you: Its main way of meeting those rules will be simply to push small and electric cars into the market at a loss in order to create the "fleet average" freedom to sell larger vehicles.

This is exactly the Faustian compromise that kept the industry together for 25 years, albeit with one big difference today: Now GM will be counting on direct taxpayer subsidies added to the mix.

We hasten to add that one old and hidden subsidy will continue to prevail, as it has for four decades, namely Washington's 25% tariff on imported "light trucks," imposed by LBJ in response to a long-forgotten chicken dispute with Western Europe. Detroit and Washington worked together to exploit the chicken tax to create a protected niche for the Big Three to make large passenger cars, call them "light trucks," and thereby shield them from foreign competition as well as the stricter fuel economy rules that apply to cars that are called "cars."

But the chicken loophole is no longer sufficient, so taxpayers will have to pitch in too. They will do so with a $7,500 tax credit for buyers of electric cars like the forthcoming Chevy Volt, plus some $25 billion in direct loans to carmakers to retool plants dedicated to "green" cars.

If this is beginning to sound like the ethanol boondoggle writ large, the parallels (and perils) are impressive. If all the industry's plans to roll out new small and electric cars are fulfilled (and Washington has poured billions into making sure they are fulfilled), a serious glut is coming. Shoppers may or may not be willing to buy these cars at some price, but few (and certainly not the electric ones) will sell at prices capable of covering the cost of building them.

Let's spend a sec on the ultimate parody: Nissan.

A few years ago, Nissan, like Toyota, decided the U.S. market for passenger "trucks" was too juicy to ignore. It invested $1.4 billion in a vast Mississippi plant to end-run the chicken tax and crank out large vehicles, especially its Titan pickup, meant to go up against the bread and butter of the Big Three.

But the Titan has not proved a success, despite an ear-catching ad campaign featuring Black Sabbath. So under CEO Carlos Ghosn, Nissan has radically switched directions and thrown itself on the mercy of the Obama administration. Nissan sought and received a $1.6 billion U.S. Energy Department loan to convert its Smyrna, Tenn., plant to churn out an all-new electric car, the Leaf, which it plans to introduce late this year at a price comparable to a small gasoline-powered sedan (i.e., far below cost).

Mr. Ghosn, once dismissive of hybrids that couldn't legitimately earn their way with consumers, has become a feverish believer in electric cars to solve all the world's problems—as long as governments are willing to assure their profitability. "We have to make money. If we don't, the technology is doomed," he recently said. "And that's one of the reasons we are negotiating with the U.S. government—to make sure we have a reasonable return on our investments and continue to develop the technology."

President Obama is from the government and he's here to help us, is a reasonable summary of Nissan's strategy for the U.S. market.

How this plan to turn a Franco-Japanese auto company into a ward of the U.S. taxpayer plays out will be interesting to watch. When Mr. Obama arrived in Washington, America's auto-cum-energy policies were already a Rube Goldberg creation of rare perversity and, let us admit, idiocy. But he can fairly claim: Taxpayers, you ain't seen nothing yet.

Mr. Jenkins writes the Journal's Business World column.

from the Wall Street Journal, 2009-May-20, p.A15, by Holman W. Jenkins, Jr.:

Obama at the Auto Buffet
With no resistance, he ate the whole thing.

With his latest installment of ever-higher fuel mileage requirements for the auto industry, Barack Obama embraces a momentary, crisis-spawned expansion of the art of the possible, unleavened by any art of the rationally desirable.

Detroit is dependent on Washington loans for survival. The industry's lobbyists and its congressional allies have collapsed in a heap, offering no resistance. So why not go for broke? If you're alone in front of the shrimp buffet, why not eat all the shrimp -- even if it makes you barf later?

Defenders of the Obama administration's Chrysler bankruptcy finagle misguidedly argue that, if not for taxpayer money, the company's secured creditors would have gotten as little or less than they did in the imposed settlement.

They miss the point. Anyone can always imagine an outcome more "fair" than the outcome provided by people duly exercising -- and the legal process duly upholding -- their rights. Fairness in a law-abiding society is due process. In the Chrysler bankruptcy, the administration hijacked the legal forms for a political end that it could have delivered honestly by the government buying Chrysler out of liquidation and handing it to the UAW.

But then Mr. Obama's purposes would have been exposed a little too nakedly for public consumption.

Already, of course, the swim of events has moved on, into deeper and more chaotic waters. The union will own 55% of Chrysler, and it would be quite rational to prefer an additional dollar of wages and benefits to 55 cents of earnings (55 cents being the union's share of a dollar of earnings).

Even this overstates the union's incentive to concern itself with the auto maker's profitability. The Chrysler stake would actually be owned not for the benefit of current workers but for retirees, since its ostensible purpose is to fund retiree health care. Yet power would still rest with a union chief elected exclusively by active members.

The administration at least understands the conflict it has set in motion. Under a reported new Chrysler contract dictated by the White House, the union surrenders its right to strike for the next six years. A redolent fact, though, is that Ron Bloom, the administration's real acting car czar in this case, was a principal in the now-defunct investment banking firm of Keilin & Bloom, which secured the 55% stake for the unions in United Airlines in the mid-1990s.

United's pilots did not strike in pursuit of what eventually became the richest contract in the industry. They did engage in work slowdowns that led to thousands of canceled and delayed flights and ferocious anger among the airline's customers. Pilot leader Rick Dubinsky told management in 2000: "We don't want to kill the golden goose. We just want to choke it by the neck until it gives us every last egg." United filed for bankruptcy two years later.

So far, the Obama administration has yet to lay out its magical thinking on how the homegrown auto makers are to become "viable" when required to subordinate every auto attribute that consumers find desirable in favor of achieving a passenger-car average of 39 miles per gallon by 2016. Nonetheless the answer has quietly seeped out: Taxpayers will write $5,000 or $7,000 rebate checks to other taxpayers to bribe them to buy hybrids and plug-ins at a price that lets Detroit claim it's earning a "profit" on its Obamamobiles.

Mr. Obama was supposed to be smart. His administration was supposed to be a smart administration. But the policy coming out has not been smart. It has been a brute shifting of power to the president's political allies, justified by the shibboleths of copybook liberalism (though Mr. Obama is clever enough to know that nothing he's done will have a meaningful effect on atmospheric carbon or climate change or the country's need for oil imports).

With no overarching philosophy in evidence, the art of the possible has come to define the Obama administration. One thing that has proved possible is an untrammeled power grab over the auto industry. Yet it all seems mainly to testify to the limitations of Saul Alinsky as a political philosopher. The doyen of community organizing, his views profoundly influenced Mr. Obama. The late Alinsky was unsentimental about power, and about accumulating it in order to extract from "the system" benefits for his constituents.

But a president also has to represent the system. He has to care about whether the setup is sustainable and ultimately meets a nation's needs and reflects its values. In delivering unlimited sway over the domestic auto makers to the greens and labor, Mr. Obama is creating a catastrophically unbalanced "system" with no effective pushback on behalf of profits (aka "viability") -- that is, except from consumers, who ultimately will doom his attempt. How so? By declining to pay enough for the forthcoming Obamamobiles to cover the cost of designing and building them.

from the Wall Street Journal, 2009-May-27, p.A17, by Dennis Buchholtz:

GM Bondholders Are People Like You and Me
The government is punishing one group of workers to reward another.

I am an American retiree. Like many small investors, I am relying on "safe" investments such as bonds backed by America's largest companies to fund my retirement. One of these companies is General Motors.

First, let's set the record straight about who owns GM's bonds. We are hardworking families, individual investors and retirees who purchased billions of these bonds in $25, $50 and $100 increments. Many bonds were bought directly and others are held in our pension funds, 401(k) plans and other retirement programs.

I purchased GM bonds in 2005 and own $91,000 worth. These bonds account for a very sizeable portion of my retirement income, and so it is absolutely devastating to watch GM's problems bring the once venerable company to the brink of failure. My standard of living is truly in jeopardy.

Despite the terrible position my fellow bondholders and I are in, we are being portrayed as the cause of GM's problems and inability to restructure.

Who is perpetrating this myth? The American government, which is at once encouraging investment in U.S. companies and vilifying those who have already invested. Billions upon billions of taxpayer dollars have been used to stabilize companies to restore investor confidence. But how can investors be confident when they're at risk of ending up on the wrong end of the government's stick?

Even more disturbing: The government's proposed restructuring plans benefit one class of retirees at the expense of another. I understand that we each have equal claims in bankruptcy. However, under the current plan GM's union retirees will receive 39% of the restructured company and $10 billion in cash in exchange for $20 billion in claims. Bondholders, however, receive a mere 10% for $27 billion in claims in the form of stock (and no cash).

I am a retired dye-making trade worker and even worked in the auto industry during my career. I don't understand why the government is penalizing people like me just for having funded my retirement with GM bonds. Bondholders, especially small bondholders, are being ignored in negotiations and singled out to bear the greatest share of the cost of restructuring GM.

We are not an unreasonable group. We understand that to save GM everyone will need to endure economic pain. But we are very troubled by the government's decision to give UAW retirees -- equal members, with the bondholders, of the unsecured creditor class -- preferential treatment. The government cannot be permitted to rewrite bankruptcy rules on a whim to selectively benefit equal groups.

Small bondholders use the interest from GM bonds for everyday living expenses and cannot afford to see GM go bankrupt. And though we've been branded as an obstacle, small investors like me are in fact the solution. Our continued investment in U.S. companies and markets is critical to an economic recovery.

By treating investors fairly, GM could take the lead in making the market attractive once again.

Mr. Buchholtz is a retired trade worker from Warren, Mich.

from the Wall Street Journal, 2009-May-21, p.A18:

About Those 'Speculators' . . .
Pension funds also got whacked by Uncle Sam.

Remember how President Obama blamed Chrysler's bankruptcy filing last month on "a small group of speculators" who turned down Treasury's $2 billion final offer for their $6.9 billion in debt? Well, it turns out that hedge funds and other short sellers weren't the only secured creditors who got a raw deal from Uncle Sam.

Indiana Treasurer Richard Mourdock revealed this week that his state's police and teacher pension funds have lost millions of dollars in the Chrysler "restructuring." Indiana's State Police Fund and Major Moves Construction Fund, which finances roads and bridges, together lost more than $1 million. And the Teacher's Retirement Fund "suffered, at a minimum, a loss of $4.6 million due to the action of the Federal government," reports Mr. Mourdock.

Far from being speculators, these funds represent retired public employees, including cops and teachers. The funds paid a premium to buy "secured" status, only to discover that they were politically outranked by the United Auto Workers in the White House hierarchy.

"In the past, to be 'secured' meant an investor was 'first in line' in the event of a bankruptcy and 'non-secured' creditors would receive value after secured-creditors were paid," Mr. Mourdock says. "In the Chrysler bankruptcy, however, secured creditors received $.29 on the dollar even as non-secured creditors received higher values and ended up with a 55% ownership of the new company, which is fundamentally wrong and a dangerous precedent to the capital markets."

We've worried that the Chrysler sandbagging would discourage bond investment. And, sure enough, Mr. Mourdock says that from now on no funds under his control will invest in the secured debt of "General Motors, other manufacturing companies, or those insurance companies who have or will be receiving bailout funds." Given the recent actions by the feds, he adds, "the risk is too great for any prudent investor to accept."

This isn't political grandstanding. Public investment officials like Mr. Mourdock have a fiduciary duty to seek maximum returns for retirees. The question for all public officials responsible for investing pension money is whether they too should conclude that investing in U.S.-aided companies now carries so much political risk that it violates their legal obligations. Such are the wages of White House disdain for legal contracts.

from the Washington Post, 2009-May-22, by David Cho, Peter Whoriskey and Kendra Marr, with Tomoeh Murakami Tse in New York contributing:

U.S. to Steer GM Toward Bankruptcy
Filing Expected as Chrysler Set to Emerge

The Obama administration is preparing to send General Motors into bankruptcy under a plan that would give the automaker tens of billions of dollars more in public financing as the company seeks to shrink and reemerge as a global competitor, sources familiar with the discussions said.

The move comes as the administration prepares to lift the nation's other faltering car company, Chrysler, from bankruptcy protection as soon as next week, industry sources said.

The shifts into and out of bankruptcy are landmarks in the Obama administration's attempt to broker a historic restructuring of the American auto industry in the space of months.

The legal tactic is viewed by some as the best means of reviving the companies. But the speed of the government-led transformation has triggered complaints that the rights of investors and dealers are being trampled. Meanwhile, fears that a bankruptcy could lead to cascading business failures are spreading throughout GM's vast chain of suppliers.

Under the GM draft bankruptcy plan, the company would receive just short of $30 billion in additional federal loans, a source said.

The figure is a starting point in negotiations between the government and the company, the source said, and could change as could the timing of a filing. A cash injection that large would boost the U.S. investment in GM to nearly $45 billion.

The government previously indicated that it planned to take at least 50 percent of the restructured company, and likely would take the right to name members to its board of directors, as it has at Chrysler, where the government will control four of nine seats.

The United Auto Workers retiree health fund is set to own as much as 39 percent of the restructured GM, in exchange for giving up its claim to at least $10 billion that the company owes it. Yesterday, the union announced that it reached an agreement with GM that will reduce the company's labor costs.

Still unknown is what part the Canadian government might play in the ongoing GM restructuring.

GM operates several plants north of the border. The Canadians agreed to invest about $3.5 billion in the Chrysler restructuring and control one of the nine board seats.

In the GM negotiations, the Canadians are poised to make a similar investment, but they are seeking assurances that the share of GM production in their country will remain the same.

"China isn't putting up the money, and Mexico isn't putting up the money," said Tony Clement, Canada's Minister of Industry. "But if we're putting up the money, just as the Americans are, then we have the right to protect our production capacity."

Clement added that the Canadian Auto Workers union would have to make more concessions before the government agrees to get involved in the GM rescue.

"We've basically been joined at the hip with U.S. Treasury on our approach with both Chrysler and GM," he said. "We have officials down here in Washington all the time. We basically review the information together. We devise strategy together and execute strategy together."

Both Chrysler and GM have been saddled with too much in debt and labor costs to compete against rivals from Japan and Korea, industry analysts say.

To alleviate the financial burdens, the Obama administration has engaged for months in negotiations with the union, dealers and creditors in hopes of reducing automaker costs without having to resort to bankruptcy court.

But last month, the administration concluded that the only way to free Chrysler of its debt was to file for Chapter 11, and it is now nearing a similar decision with GM.

The chief obstacle to an out-of-court settlement for GM remains: There has been no agreement between the company and the investors who hold $27 billion worth of GM bonds.

Under orders from the Obama administration, GM has offered to give the bondholders a 10 percent equity stake in the restructured company in exchange for giving up their bonds.

So far, however, the investors have resisted that proposal and if no accord is reached by June 1, GM will follow Chrysler into bankruptcy.

The speed with which the Chrysler bankruptcy has proceeded has given the administration more confidence that the best path for GM may be a similar trip, where the claims of disgruntled creditors and dealers can be more easily resolved.

In the Chrysler proceedings, the court has yet to stand in the way of plans to create a new company led by Italian carmaker Fiat. Chrysler's existing assets would be sold to the new company and the new entity could be up and running as soon as next week.

That's because Chrysler is asking U.S. Bankruptcy Judge Arthur Gonzalez to waive the customary 10-day waiting period before the order approving the sale becomes effective. The hearing on the sale is scheduled for next Wednesday at 10 a.m.

Gonzalez has already granted a similar request to expedite proceedings. Time and again in court, Chrysler executives and attorneys have argued -- and the court has agreed -- that Chrysler's core assets are "wasting" and that an immediate sale must take place to preserve value.

"Subject to the closing conditions, a new Chrysler could emerge as soon as the ink is dry on the judge's order," said Scott Van Meter, managing director of LECG, a consulting firm.

The administration is taking steps to prepare. It is drafting the paperwork for a $4.7 billion loan to sustain Chrysler after it emerges from bankruptcy. On Wednesday, the automaker announced that C. Robert Kidder, former chairman of Borden Chemical and of Duracell International will become the company's new chairman. He will succeed Robert L. Nardelli.

Chrysler still could encounter some delays. The company faces a new legal challenge from pension funds representing Indiana teachers and police officers as well as a state construction fund. The investors, who contend that the automaker's sale violates their rights as senior secured lenders to Chrysler, are seeking to move the bankruptcy proceedings to federal district court, which has authority over the bankruptcy court.

A hearing on the matter is scheduled in district court Tuesday.

There are also challenges outside court. Chrysler has moved to close 789 dealerships on June 9. But Sen. Kay Bailey Hutchison (R-Tex.) has introduced legislation that would withhold federal funding if the automaker does not give dealers an extra 60 days to close down operations and sell remaining inventory. Her amendment has won the backing of a number of other senators.

Judiciary Committee chairman Rep. John Conyers Jr. (D-Mich.) said he hopes to meet with White House officials today to discuss changing Chrysler's bankruptcy plan and GM's future. Conyers did not outline what he wanted, but a nine-person panel he assembled for a hearing yesterday offered a hint. Liberal consumer advocate Ralph Nader, a conservative Heritage Foundation analyst and minority auto dealers all criticized the automakers' restructuring.

Conyers and other committee members attacked the administration for abusing bankruptcy laws, unfairly eliminating dealerships and jeopardizing consumer safety.

"GM now stands for Government Motors," said Rep. Lamar Smith (R-Tex.). "While the UAW is cashing in, it's the dealers, creditors and American taxpayers who are being forced to cash out."

from the Wall Street Journal, 2009-May-20:

Car Crazy
Bankrupt companies making 39 mpg autos. Are we nuts?

At the end of his Rose Garden explanation yesterday of the new U.S. fuel-efficiency standards, President Obama remarked on the good that can be accomplished when we are "working together." The President may be getting ahead of himself. Watching the unlikely coalition arrayed behind him as Mr. Obama committed the U.S. to an astonishing passenger-car mileage average of 39 miles per gallon by 2016, it looks truer to say we are merely standing together in this adventure, for better or worse.

Mr. Obama's fleet-mileage partners yesterday included the two auto companies that have fallen into his arms, Chrysler and GM, still-independent Ford, the major foreign manufacturers, United Auto Workers chief Ron Gettelfinger, and beaming representatives from the Sierra Club, Environmental Defense Fund and the Union of Concerned Scientists.

All that's left to arrive at the President's new destination for the American way of driving are huge, unanswered questions about technology, financing and the marketability of cars that will be small and expensive.

Start with technology. The President's proposed standards would raise fuel economy goals higher and faster than even the National Highway Transportation Safety Administration believes is practical. Last year, NHTSA issued a proposed rule making that would have raised fuel economy to 32.2 mpg by 2015 for cars and light trucks combined. Its 376-page report notes that "the resources used to meet overly stringent CAFE standards . . . would better be allocated to other uses such as technology research and development, or improvements in vehicle safety."

The new U.S. fleet will almost certainly be made up of hybrids and electric cars. This comports with the explicit intention of the President and his environmental partners to back out fossil fuels. One may ask: Once Detroit is forced to build these cars, will free Americans want to buy them, at any price?

Unless we outlaw the bigger cars that recent sales figures have shown Americans prefer any time gas prices fall below $4 per gallon, Detroit will need help marketing these small vehicles. As GM's Bob Lutz put it not long ago, "Very few people will want to change what has been their 'nationality given' right to drive big and bigger if the price of gas is $1.50 or $2 or even $2.50. Those prices will put the CAFE-mandated manufacturers at war with their customers."

All solutions to this problem flow from Washington. One would be to give substantial tax subsidies to buyers. Another would be to impose a federal gas tax to jack up the price of gasoline to $4 per gallon and keep it there. This is the solution that keeps Europeans driving small cars with tiny engines. High gasoline prices have become a political third rail in U.S. politics, and the Obama Administration insists it isn't interested in subsidies or taxes.

That puts the burden back on the beleaguered auto makers. The Detroit Three already sell small cars at a loss to meet the current 27.5 mpg fleet average. The car companies may hope that if the whole industry is forced to move up the fuel-economy ladder, consumers will have no choice other than to buy these cars. But experience suggests companies that have specialized in making smaller cars, such as the Japanese-owned auto makers, are more likely to be able to sell them at a profit.

Mr. Obama said a lot yesterday about the promised benefits of all this for the environment but not much about return on investment for the auto sellers. These public goals notwithstanding, it still looks as if Ford, Chrysler and GM will be making cars they can't sell, or can't sell profitably. That might not be a problem if you're now Gettelfinger Motors. But still-independent Ford has private shareholders and creditors to answer. While GM and Chrysler attempt to meet the new standards with taxpayer money, Ford will have to do so on its own.

The real carrot the Administration offered the industry yesterday was a detour from the nightmare of state-mandated standards. California has been seeking a waiver from the Administration to impose its own higher mileage standards, and a number of other states have followed suit. The Obama national proposal indeed offers the industry what he called "consistency."

So yes, it is possible to see why this disparate group came together yesterday. The UAW may soon be the government's partner in ownership of GM and Chrysler, and it has a strong incentive not to bite the hand feeding it a huge equity stake in the car makers. Ford and the other foreign-owned auto makers, which will have to raise private capital to make changes that U.S. taxpayers will fund at Chrysler and GM, no doubt want to maintain their political viability by not standing athwart this regulatory steamroller.

We wish these folks luck "working together" with the Obama auto-design team. One thing seems certain by 2016: Taxpayers will be paying Detroit to make the cars Americans don't want, and then they will pay again either through (trust us) a gas tax or with a purchase subsidy. Even the French must think we're nuts.

from the Times of London, 2009-May-17, by Jeremy Clarkson:

Honda Insight 1.3 IMA SE Hybrid

Much has been written about the Insight, Honda’s new low-priced hybrid. We’ve been told how much carbon dioxide it produces, how its dashboard encourages frugal driving by glowing green when you’re easy on the throttle and how it is the dawn of all things. The beginning of days.

So far, though, you have not been told what it’s like as a car; as a tool for moving you, your friends and your things from place to place.

So here goes. It’s terrible. Biblically terrible. Possibly the worst new car money can buy. It’s the first car I’ve ever considered crashing into a tree, on purpose, so I didn’t have to drive it any more.

The biggest problem, and it’s taken me a while to work this out, because all the other problems are so vast and so cancerous, is the gearbox. For reasons known only to itself, Honda has fitted the Insight with something called constantly variable transmission (CVT).

It doesn’t work. Put your foot down in a normal car and the revs climb in tandem with the speed. In a CVT car, the revs spool up quickly and then the speed rises to match them. It feels like the clutch is slipping. It feels horrid.

And the sound is worse. The Honda’s petrol engine is a much-shaved, built-for-economy, low-friction 1.3 that, at full chat, makes a noise worse than someone else’s crying baby on an airliner. It’s worse than the sound of your parachute failing to open. Really, to get an idea of how awful it is, you’d have to sit a dog on a ham slicer.

So you’re sitting there with the engine screaming its head off, and your ears bleeding, and you’re doing only 23mph because that’s about the top speed, and you’re thinking things can’t get any worse, and then they do because you run over a small piece of grit.

Because the Honda has two motors, one that runs on petrol and one that runs on batteries, it is more expensive to make than a car that has one. But since the whole point of this car is that it could be sold for less than Toyota’s Smugmobile, the engineers have plainly peeled the suspension components to the bone. The result is a ride that beggars belief.

There’s more. Normally, Hondas feel as though they have been screwed together by eye surgeons. This one, however, feels as if it’s been made from steel so thin, you could read through it. And the seats, finished in pleblon, are designed specifically, it seems, to ruin your skeleton. This is hairy-shirted eco-ism at its very worst.

However, as a result of all this, prices start at £15,490 — that’s £3,000 or so less than the cost of the Prius. But at least with the Toyota there is no indication that you’re driving a car with two motors. In the Insight you are constantly reminded, not only by the idiotic dashboard, which shows leaves growing on a tree when you ease off the throttle (pass the sick bucket), but by the noise and the ride and the seats. And also by the hybrid system Honda has fitted.

In a Prius the electric motor can, though almost never does, power the car on its own. In the Honda the electric motor is designed to “assist” the petrol engine, providing more get-up-and-go when the need arises. The net result is this: in a Prius the transformation from electricity to petrol is subtle. In the Honda there are all sorts of jerks and clunks.

And for what? For sure, you could get 60 or more mpg if you were careful. And that’s not bad for a spacious five-door hatchback. But for the same money

you could have a Golf diesel, which

will be even more economical. And hasn’t been built out of rice paper to keep costs down.

Of course, I am well aware that there are a great many people in the world who believe that the burning of fossil fuels will one day kill all the Dutch and that something must be done.

They will see the poor ride, the woeful performance, the awful noise and the spine-bending seats as a price worth paying. But what about the eco-cost of building the car in the first place?

Honda has produced a graph that seems to suggest that making the Insight is only marginally more energy-hungry than making a normal car. And that the slight difference is more than negated by the resultant fuel savings.

Hmmm. I would not accuse Honda of telling porkies. That would be foolish. But I cannot see how making a car with two motors costs the same in terms of resources as making a car with one.

The nickel for the battery has to come from somewhere. Canada, usually. It has to be shipped to Japan, not on a sailing boat, I presume. And then it must be converted, not in a tree house, into a battery, and then that battery must be transported, not on an ox cart, to the Insight production plant in Suzuka. And then the finished car has to be shipped, not by Thor Heyerdahl, to Britain, where it can be transported, not by wind, to the home of a man with a beard who thinks he’s doing the world a favour.

Why doesn’t he just buy a Range Rover, which is made from local components, just down the road? No, really — weird-beards buy locally produced meat and vegetables for eco-reasons. So why not apply the same logic to cars?

At this point you will probably dismiss what I’m saying as the rantings of a petrolhead, and think that I have my head in the sand.

That’s not true. While I have yet to be convinced that man’s 3% contribution to the planet’s greenhouse gases affects the climate, I do recognise that oil is a finite resource and that as it becomes more scarce, the political ramifications could well be dire. I therefore absolutely accept the urgent need for alternative fuels.

But let me be clear that hybrid cars are designed solely to milk the guilt genes of the smug and the foolish. And that pure electric cars, such as the G-Wiz and the Tesla, don’t work at all because they are just too inconvenient.

Since about 1917 the car industry has not had a technological revolution — unlike, say, the world of communications or film. There has never been a 3G moment at Peugeot nor a need to embrace DVD at Nissan. There has been no VHS/Betamax battle between Fiat and Renault.

Car makers, then, have had nearly a century to develop and hone the principles of suck, squeeze, bang, blow. And they have become very good at it.

But now comes the need to throw away the heart of the beast, the internal combustion engine, and start again. And, critically, the first of the new cars with their new power systems must be better than the last of the old ones. Or no one will buy them. That’s a tall order. That’s like dragging Didier Drogba onto a cricket pitch and expecting him to be better than Ian Botham.

And here’s the kicker. That’s exactly what Honda has done with its other eco-car, the Clarity. Instead of using a petrol engine to charge up the electric motor’s batteries, as happens on the Insight, the Clarity uses hydrogen: the most abundant gas in the universe.

The only waste product is water. The car feels like a car. And, best of all, the power it produces is so enormous, it can be used by day to get you to 120mph and by night to run all the electrical appliances in your house. This is not science fiction. There is a fleet of Claritys running around California right now.

There are problems to be overcome. Making hydrogen is a fuel-hungry process, and there is no infrastructure. But Alexander Fleming didn’t look at his mould and think, “Oh dear, no one will put that in their mouth”, and give up.

I would have hoped, therefore, that Honda had diverted every penny it had into making hydrogen work rather than stopping off on the way to make a half-arsed halfway house for fools and madmen.

The only hope I have is that there are enough fools and madmen out there who will buy an Insight to look sanctimonious outside the school gates. And that the cash this generates can be used to develop something a bit more constructive.

The Clarksometer

Honda Insight 1.3 IMA SE Hybrid

Engine 1399cc, four cylinders

Power 87bhp@5800rpm

Torque 89 lb ft @ 4500rpm

Transmission CVT

Fuel 64.2mpg (combined)

CO2 101g/km

Acceleration 0-62mph: 12.5sec

Top speed 113mph

Price £15,490

Road tax band B (£15 a year)

Clarkson's verdict

★ ☆ ☆ ☆ ☆

Good only for parting the smug from their money

from the Detroit News, 2009-May-19, by David Shepardson and Gordon Trowbridge:

UAW backs climate change bill, with industry aid

Washington -- The United Auto Workers Monday blessed House Democrats' plan to limit greenhouse gas emissions, after congressional leaders agreed to add billions of dollars to support struggling automakers.

The endorsement came as House Democrats opened debate on a landmark climate change bill and culminates a steady shift on environmental issues by the UAW, which for decades fought efforts to boost fuel efficiency.

The 946-page draft House climate change bill would provide the struggling auto industry with billions of dollars to develop advanced vehicle technology.

It also requires electric utilities to plan for accommodating large-scale use of plug-in electric vehicles.

"We are especially pleased that this program would require electricity sources, fuel producers and importers, mobile sources and industrial stationary sources to come to the table to participate," Alan Reuther, the UAW's legislative director, wrote in a letter to Congress endorsing the legislation.

State and local governments could apply for financial assistance in creating the infrastructure for plug-ins. Manufacturers could apply for aid in producing them and in buying the expensive batteries that would be the vehicles' heart.

The bill would give automakers 3 percent of the federal government's revenue from carbon emissions permits from 2012 through 2017 -- allowances that could be worth more than $10 billion, according to analysts at consulting firm PointCarbon. That money would be routed through government programs to encourage advanced technology vehicles.

After 2017, and through 2025, the industry would receive 1 percent of allowances.

The climate bill would also double the amount authorized for the auto retooling program to $50 billion. In September, Congress approved $25 billion in low-cost retooling loans, but the Energy Department has yet to award any of the money.

Reuther said the legislation "will help to accelerate the introduction of advanced vehicles while protecting American autoworkers' jobs.

Republicans vow to oppose legislation they say would kill jobs by raising energy prices.

from the Wall Street Journal, 2009-May-13, by Martin Feldstein:

Tax Increases Could Kill the Recovery
The cap-and trade levy would hit low-income earners especially hard.

The barrage of tax increases proposed in President Barack Obama's budget could, if enacted by Congress, kill any chance of an early and sustained recovery.

Historians and economists who've studied the 1930s conclude that the tax increases passed during that decade derailed the recovery and slowed the decline in unemployment. That was true of the 1935 tax on corporate earnings and of the 1937 introduction of the payroll tax. Japan did the same destructive thing by raising its value-added tax rate in 1997.

The current outlook for an economic recovery remains precarious. Although the stimulus package will give a temporary boost to growth in the current quarter, it will not be enough to offset the combined effect of lower consumer spending, the decline in residential construction, the weakness of exports, the limited availability of bank credit and the downward spiral of house prices. A sustained economic upturn is far from a sure thing. This is no time for tax increases that will reduce spending by households and businesses.

Even if the proposed tax increases are not scheduled to take effect until 2011, households will recognize the permanent reduction in their future incomes and will reduce current spending accordingly. Higher future tax rates on capital gains and dividends will depress share prices immediately and the resulting fall in wealth will cut consumer spending further. Lower share prices will also raise the cost of equity capital, depressing business investment in plant and equipment.

The Obama budget calls for tax increases of more than $1.1 trillion over the next decade. Official budget calculations disguise the resulting fiscal drag by treating Mr. Obama's proposal to cancel the 2011 income tax increases for taxpayers with incomes below $250,000 as if they are real tax cuts. The plan to modify the Alternative Minimum Tax to avoid increases for some taxpayers is also treated as a tax cut.

But those are false tax cuts in which no one's tax bill actually declines. In contrast, the proposed tax increases are very real. And despite the proposed tax increases, the government's new spending and transfer programs would cause the annual budget deficit in 2019 to exceed $1 trillion, or 5.7% of GDP.

Mr. Obama's biggest proposed tax increase is the cap-and-trade system of requiring businesses to buy carbon dioxide emission permits. The nonpartisan Congressional Budget Office (CBO) estimates that the proposed permit auctions would raise about $80 billion a year and that these extra taxes would be passed along in higher prices to consumers. Anyone who drives a car, uses public transportation, consumes electricity or buys any product that involves creating CO2 in its production would face higher prices.

CBO Director Douglas Elmendorf testified before the Senate Finance Committee on May 7 that the cap-and-trade price increases resulting from a 15% cut in CO2 emissions would cost the average household roughly $1,600 a year, ranging from $700 in the lowest-income quintile to $2,200 in the highest-income quintile. Since the amount of cap-and-trade tax rises with income, the cap-and-trade tax has the same kind of adverse work incentives as the income tax. And since the purpose of the cap-and-trade plan is to discourage the consumption of CO2-intensive products, energy or means of transportation by raising their cost to consumers, the consumer-price increases would be the same for a 15% reduction in C02 even if the government decides to give away some of the CO2 emissions permits.

But while the cap-and-trade tax rises with income, the relative burden is greatest for low-income households. According to the CBO, households in the lowest-income quintile spend more than 20% of their income on energy intensive items (primarily fuels and electricity), while those in the highest-income quintile spend less than 5% on those products.

The CBO warns that the estimate of an $80 billion-a-year tax increase could be significantly higher or lower, depending on how the program is designed. The Waxman-Markey bill currently before Congress calls for reducing greenhouse gasses 20% by 2020 and by an incredible 83% by 2050. As the government reduces the amount of CO2 that is allowed, the price of the CO2 permits would rise and the pass-through to consumer prices would also increase.

The next-largest tax increase -- with a projected rise in revenue of more than $300 billion between 2011 and 2019 -- comes from increasing the tax rates on the very small number of taxpayers with incomes over $250,000. Because this revenue estimate doesn't take into account the extent to which the higher marginal tax rates would cause those taxpayers to reduce their taxable incomes -- by changing the way they are compensated, increasing deductible expenditures, or simply earning less -- it overstates the resulting increase in revenue.

Since the projected revenue from this source is already designated to be used for Mr. Obama's health plan, some other tax increases will be needed. Moreover, Mr. Obama's budget characterizes the projected $634 billion outlay for health-care reform as just a down payment on the program. The budget notes that there would be "additional resources and new benefits to be determined with Congress." Those additional resources would no doubt be even higher taxes.

The third major tax increase is the plan to raise $220 billion over the next nine years by changing the taxation of foreign-source income. While some extra revenue could no doubt come from ending the tax avoidance gimmicks that use dummy corporations in the Caribbean, most of the projected revenue comes from disallowing corporations to pay lower tax rates on their earnings in countries like Germany, Britain and Ireland. The purpose of the tax change is not just to raise revenue but also to shift overseas production by American firms back to the U.S. by reducing the tax advantage of earning profits abroad.

The administration is likely to be disappointed about its ability to achieve both goals. Bringing production back to be taxed at the higher U.S. tax rate would raise the cost of capital and make the products less competitive in global markets. American corporations would therefore have an incentive to sell their overseas subsidiaries to foreign firms. That would leave future profits overseas, denying the Treasury Department any claim on the resulting tax revenue. And new foreign owners would be more likely to use overseas suppliers than to rely on inputs from the U.S. The net result would be less revenue to the Treasury and fewer jobs in America.

It's not too late for Mr. Obama to put these tax increases on hold. If he doesn't, Congress should protect the recovery and the longer-term health of the U.S. economy by voting down this enormous round of higher taxes.

Mr. Feldstein, chairman of the Council of Economic Advisers under President Reagan, is a professor at Harvard and a member of The Wall Street Journal's board of contributors.

from the Wall Street Journal, 2009-May-19, p.A16:

How Washington Rations
ObamaCare omen: a case study in 'cost-control.'

Try to follow this logic: Last week the Medicare trustees reported that the program has an "unfunded liability" of nearly $38 trillion -- which is the amount of benefits promised but not covered by taxes over the next 75 years. So Democrats have decided that the way to close this gap is to create a new "universal" health insurance entitlement for the middle class.

Such thinking may be a non sequitur, but it will have drastic effects on the health care of all Americans -- and as it happens, this future is playing out in miniature in Medicare right now. Desperate to prevent medical costs from engulfing the federal budget, the program's central planners decided last week to deny payment for a new version of one of life's most unpleasant routine procedures, the colonoscopy. This is a preview of how health care will be rationed when Democrats get their way.

At issue are "virtual colonoscopies," or CT scans of the abdomen. Colon cancer is the second leading cause of U.S. cancer death but one of the most preventable. Found early, the cure rate is 93%, but only 8% at later stages. Virtual colonoscopies are likely to boost screenings because they are quicker, more comfortable and significantly cheaper than the standard "optical" procedure, which involves anesthesia and threading an endoscope through the lower intestine.

Virtual colonoscopies are endorsed by the American Cancer Society and covered by a growing number of private insurers including Cigna and UnitedHealthcare. The problem for Medicare is that if cancerous lesions are found using a scan, then patients must follow up with a traditional colonoscopy anyway. Costs would be lower if everyone simply took the invasive route, where doctors can remove polyps on the spot. As Medicare noted in its ruling, "If there is a relatively high referral rate [for traditional colonoscopy], the utility of an intermediate test such as CT colonography is limited." In other words, duplication would be too pricey.

This is precisely the sort of complexity that the Democrats would prefer to ignore as they try to restructure health care. Led by budget chief Peter Orszag, the White House believes that comparative effectiveness research, which examines clinical evidence to determine what "works best," will let them cut wasteful or ineffective treatments and thus contain health spending.

The problem is that what "works best" isn't the same for everyone. While not painless or risk free, virtual colonoscopy might be better for some patients -- especially among seniors who are infirm or because the presence of other diseases puts them at risk for complications. Ideally doctors would decide with their patients. But Medicare instead made the hard-and-fast choice that it was cheaper to cut it off for all beneficiaries. If some patients are worse off, well, too bad.

Medicare is already the country's largest purchaser of health care. Private carriers generally adopt its rates and policies, and the virtual colonoscopy decision may run this technology out of the marketplace. Now multiply that by the new "public option" that Democrats favor, which would transfer millions of patients to a new insurance program managed by the federal government. Washington's utilitarian judgments about costs would reshape the practice of medicine.

Initially, the open-ended style of American care will barely be touched, if only for political self-preservation. Health planners will adjust at the margins, as with virtual colonoscopy. But scarcity forces choices. As the Medicare trustees note in their report, the tax increases necessary to fund merely the current benefit schedule for the elderly would cripple the economy. The far more expensive public option will not turn into a pumpkin when cost savings do not materialize. At that point, government will clamp down with price controls in the form of lines and rock-bottom reimbursement rates.

Mr. Orszag says that a federal health board will make these Solomonic decisions, which is only true until the lobbies get to Congress and the White House. With virtual colonoscopy, radiologists and gastroenterologists are feuding over which group should get paid for colon cancer screening. Companies like General Electric and Seimens that make CT technology are pressuring Medicare administrators too. More than 50 Congressmen are demanding that the decision be overturned.

All this is merely a preview of the life-and-death decisions that will be determined by politics once government finances substantially more health care than the 46% it already does. Anyone who buys Democratic claims about "choice" and "affordability" will be in for a very rude awakening.

from the Wall Street Journal, 2009-May-12, p.A16:

Signing On to an Obama 'Dream'
Health providers agree to Obama health plan's notion of cost savings.

At a news conference yesterday, President Obama said, "I will not rest until the dream of health-care reform is achieved in the United States of America." Normally dreams cost you nothing, but Mr. Obama's determination not to rest until his becomes reality is likely to cost plenty. Yesterday a coalition of private health-system providers, seeing no exit from the administration's reform plans, signed on to the dream.

They agreed in principle to try to shave 1.5 percentage points off the growth rate of U.S. health-care costs over the next decade, about $2 trillion. This vague, probably illusory promise isn't much as a matter of policy, but it is a major political development in what is the Obama Presidency's No. 1 priority.

The private groups are calculating that they can better influence this year's bill if they're "partners" instead of villains. They've no doubt seen what happened to Wall Street and Chrysler bondholders. All the same, they must surely know they have made a Faustian bargain that in time will result in price controls and restrictions on care.

The Obama Administration, by contrast, is convinced that it is smart enough to engineer more efficient medical practices out of D.C. The dominant White House voice on health policy is Peter Orszag, the budget chief. He cites research out of Dartmouth that shows health-care spending varies wildly between regions, often with little or no correlation to health outcomes.

Mr. Orszag champions "comparative effectiveness research" -- studying the patterns of clinical practice to determine which drugs and treatments work best. The Administration thinks it can use such analysis to weed out wasteful or unnecessary care by paying more "if the treatment has been shown to be effective and a little less if not," as Mr. Orszag recently told the New Yorker.

The irony is that the history of post-1965 U.S. health care policy is littered with similar government attempts to control health spending, not least comparative effectiveness. The "managed care" movement of the 1990s grew directly out of the peer-review panels created by Congress in 1972 to monitor the quality and appropriateness of care for Medicare and Medicaid patients.

Under managed care, doctors and hospitals had to undergo prior "utilization review" by HMOs to reduce unnecessary hospitalizations, surgeries, tests, prescriptions and so on. This cost-effectiveness gatekeeping disciplined health spending. What happened next to this version of the dream is known to all.

Administrative hassles led to a consumer backlash, with patients feeling they were getting inferior care in return for insurer profits. The political class eventually forced the HMOs to dilute or end most of their cost-control strategies.

Democrats have now acknowledged that the managed care dream will work only if government is the one doing the managing. That is, we can only control costs with a new government entitlement. More is less.

But you can only allocate a scarce resource in two ways: market prices or brute force. In health care the brute force will come as price controls and waiting lines for rationed services. The implicit assumption in the providers' deal announced yesterday seems to be that the private companies will do the price controlling so the government won't have to do it for them.

But when the savings prove illusory, as in the past, the feds will step in and order them to do so. To win a false reprieve for themselves and give cost cover to the politicians, these private CEOs are offering to make themselves even more unpopular with patients. By that point, most patients will have no choice but to assent, since most of them will be in one government program or another.

Lest anyone remains in doubt about the ultimate goal here, Ralph Neas of the leftist National Coalition on Health Care got out a quick statement throwing ice water on the industry's concession. With perfect clarity Mr. Neas said: "Voluntary efforts -- without legislated requirements and enforcement -- have not worked well in the past."

The only benefit here is that it is now possible to see where this issue is headed: A new legislated entitlement for the middle class will ensure that the next great health-care argument to engulf the political system is going to be over how and when to ration care.

from the Wall Street Journal, 2009-May-12, by Scott Gottlieb:

How ObamaCare Will Affect Your Doctor
Expect longer waits for appointments as physicians get pinched on reimbursements.

At the heart of President Barack Obama's health-care plan is an insurance program funded by taxpayers, administered by Washington, and open to everyone. Modeled on Medicare, this "public option" will soon become the single dominant health plan, which is its political purpose. It will restructure the practice of medicine in the process.

Republicans and Democrats agree that the government's Medicare scheme for compensating doctors is deeply flawed. Yet Mr. Obama's plan for a centrally managed government insurance program exacerbates Medicare's problems by redistributing even more income away from lower-paid primary care providers and misaligning doctors' financial incentives.

Like Medicare, the "public option" will control spending by using its purchasing clout and political leverage to dictate low prices to doctors. (Medicare pays doctors 20% to 30% less than private plans, on average.) While the public option is meant for the uninsured, employers will realize it's easier -- and cheaper -- to move employees into the government plan than continue workplace coverage.

The Lewin Group, a health-care policy research and consulting firm, estimates that enrollment in the public option will reach 131 million people if it's open to everyone and pays Medicare rates, as many expect. Fully two-thirds of the privately insured will move out of or lose coverage. As patients shift to a lower-paying government plan, doctors' incomes will decline by as much as 15% to 20% depending on their specialty.

Physician income declines will be accompanied by regulations that will make practicing medicine more costly, creating a double whammy of lower revenue and higher practice costs, especially for primary-care doctors who generally operate busy practices and work on thinner margins. For example, doctors will face expenses to deploy pricey electronic prescribing tools and computerized health records that are mandated under the Obama plan. For most doctors these capital costs won't be fully covered by the subsidies provided by the plan.

Government insurance programs also shift compliance costs directly onto doctors by encumbering them with rules requiring expensive staffing and documentation. It's a way for government health programs like Medicare to control charges. The rules are backed up with threats of arbitrary probes targeting documentation infractions. There will also be disproportionate fines, giving doctors and hospitals reason to overspend on their back offices to avoid reprisals.

The 60% of doctors who are self-employed will be hardest hit. That includes specialists, such as dermatologists and surgeons, who see a lot of private patients. But it also includes tens of thousands of primary-care doctors, the very physicians the Obama administration says need the most help.

Doctors will consolidate into larger practices to spread overhead costs, and they'll cram more patients into tight schedules to make up in volume what's lost in margin. Visits will be shortened and new appointments harder to secure. It already takes on average 18 days to get an initial appointment with an internist, according to the American Medical Association, and as many as 30 days for specialists like obstetricians and neurologists.

Right or wrong, more doctors will close their practices to new patients, especially patients carrying lower paying insurance such as Medicaid. Some doctors will opt out of the system entirely, going "cash only." If too many doctors take this route the government could step in -- as in Canada, for example -- to effectively outlaw private-only medical practice.

These changes are superimposed on a payment system where compensation often bears no connection to clinical outcomes. Medicare provides all the wrong incentives. Its charge-based system pays doctors more for delivering more care, meaning incomes rise as medical problems persist and decline when illness resolves.

So how should we reform our broken health-care system? Rather than redistribute physician income as a way to subsidize an expansion of government control, Mr. Obama should fix the payment system to align incentives with improved care. After years of working on this problem, Medicare has only a few token demonstration programs to show for its efforts. Medicare's failure underscores why an inherently local undertaking like a medical practice is badly managed by a remote and political bureaucracy.

But while Medicare has stumbled with these efforts, private health plans have made notable progress on similar payment reforms. Private plans are more likely to lead payment reform efforts because they have more motivation than Medicare to use pay as a way to achieve better outcomes.

Private plans already pay doctors more than Medicare because they compete to attract higher quality providers into their networks. This gives them every incentive, as well as added leverage, to reward good clinicians while penalizing or excluding bad ones. A recent report by PriceWaterhouse Coopers that examined 10 of the nation's largest commercial health plans found that eight had implemented performance-based pay measures for doctors. All 10 plans are expanding efforts to monitor quality improvement at the provider level.

Among the promising examples of private innovation in health-care delivery: In Pennsylvania, the Geisinger Clinic's "warranty" program, where providers take financial responsibility for the entire episode of care; or the experience of the Blue Cross Blue Shield plans in Pennsylvania, Michigan and Virginia, where doctors are paid more for delivering better outcomes.

There are plenty of alternatives to Mr. Obama's plan that expand coverage to the uninsured, give them the chance to buy private coverage like Congress enjoys, and limit government management over what are inherently personal transactions between doctors and patients.

Rep. Nydia Velazquez (D., N.Y.) has introduced a bipartisan measure, the Small Business Cooperative for Healthcare Options to Improve Coverage for Employees (Choice) Act of 2009, that would make it cheaper and easier for small employers to offer health insurance. Mr. Obama would also get bipartisan compromise on premium support for people priced out of insurance to give them a wider range of choices. This could be modeled after the Medicare drug benefit, which relies on competition between private plans to increase choices and hold down costs. It could be funded, in part, through tax credits targeted to lower-income Americans.

There are also measures available that could fix structural flaws in our delivery system and make coverage more affordable without top-down controls set in Washington. The surest way to intensify flaws in the delivery of health care is to extend a Medicare-like "public option" into more corners of the private market. More government control of doctors and their reimbursement schemes will only create more problems.

Dr. Gottlieb, a former official at the Centers for Medicare and Medicaid Services, is a fellow at the American Enterprise Institute and a practicing internist. He's partner to a firm that invests in health-care companies.

from the Wall Street Journal, 2009-May-14:

Target: Intel, and Competition
Team Obama adopts the European model on antitrust.

The world is returning to the 1970s on most economic policies, so why not antitrust too? Judging by events this week, antitrust enforcement in the U.S. and Europe is in for a major comeback, whether or not consumers benefit.

Yesterday in Brussels, the European Commission imposed a record antitrust fine of $1.45 billion on Intel for the heinous crime of discounting computer chips in its fierce and long-running competition with AMD. Meanwhile on Monday, President Obama's new antitrust chief, Christine Varney, issued a radical revision of the Department of Justice's own antitrust enforcement standards. Ms. Varney's ambition seems to be nothing less than bringing Europe's corporatist approach to competition policy to the U.S. To succeed, she will have to flout or overturn decades of Supreme Court precedent on the limits of U.S. antitrust law.

But Ms. Varney can be sure of a friendly ear in Brussels, which has never let go of the idea that competition is best when there isn't much of it. The Commission's attitude is on full display in the fining of Intel for allegedly abusing its dominant position in the market for computer processors. For years, Intel and AMD have been essentially the only game in town for computer CPUs. The Commission's complaint amounts to little more than a whinge that Intel won more of this business than the Commission would prefer.

This is couched in dark-sounding talk about Intel paying computer makers not to buy AMD chips. But remember there is only so much demand and there are only two major market players. So any order won by Intel by offering a discount or a rebate is, by definition, an order lost by AMD. And yet the Commission bizarrely claims that "millions of Europeans" have been harmed by this price war.

Intel has been able to sell enough chips cheaply enough to maintain an overall market share that has hovered between 75% and 80% for years. And those lower prices help drive down the price of a computer, which is good for consumers. A less competitive market for chips, or one in which Intel is barred from offering discounts to its biggest customers, would mean higher consumer prices. The Commission also suggests that Intel may have sold some chips below its cost, but Intel denies this and claims it can prove it if the Commission would deign to consider its evidence.

The Commission is, as ever, more focused on preserving competitor welfare above consumer welfare, and Ms. Varney at Justice seems to be promoting a similar approach. The American left likes to advertise itself as pro-consumer. But the curious reality about the left's view of antitrust in both Europe and America is that it is often used to assist big business by dampening competition. This corporatist notion seems to be that companies should compete, so long as no one really loses. Ms. Varney paid lip service to the dangers of protecting competitors when she criticized the National Industrial Recovery Act, ushered in by FDR during the Great Depression. That odious piece of industrial policy blessed price collusion between big firms in exchange for a commitment to keep people employed and share some of the collusive profits with labor.

But in her speech, Ms. Varney tries to cast this anticompetitive act as a form of deregulation. In fact, the NIRA was regulation of the worst sort, protecting competitors from competitive harm in the name of some greater good. True deregulation aims at greater competition, while European (and Rooseveltian) corporatism dampens it. This historical obfuscation allows Ms. Varney to argue that it would be good for competition to adopt something like Europe's "abuse of dominant position" standard in place of the consumer-harm test that currently prevails in the U.S.

Europe's Intel case makes the importance of these different tests very clear. By any reasonable application of a consumer-harm test, the antitrust claim that Intel is driving down prices -- and so making computers less expensive -- would be laughed out of U.S. court. The only harm here is to a competitor that can't match Intel's prices. And even at that, AMD isn't exactly going out of business. At times its market share for consumer desktop CPUs has been as high as 50%, and at its most successful the upper bound has been determined as much by AMD's own manufacturing capacity as by Intel's behavior.

When she announced the judgment against Intel Wednesday, European Competition Commissioner Neelie Kroes praised Ms. Varney's new approach to antitrust. And no wonder. Regulators love company, and European regulators in particular love it when their American counterparts help them hamstring the most efficient U.S. companies. Why President Obama should want to punish U.S. multinationals is harder to figure since his political success hangs on economic recovery and a revival in business profits and hiring. But perhaps we should conclude that this is merely one more example of the ways in which this Administration is seeking to remake American capitalism in the image of Continental Europe.

from the Business Insider, 2009-May-5, by John Carney:

New Allegations Of White House Threats Over Chrysler

Creditors to Chrysler describe negotiations with the company and the Obama administration as "a farce," saying the administration was bent on forcing their hands using hardball tactics and threats.

Conversations with administration officials left them expecting that they would be politically targeted, two participants in the negotiations said.

Although the focus has so been on allegations that the White House threatened Perella Weinberg, sources familiar with the matter say that other firms felt they were threatened as well. None of the sources would agree to speak except on the condition of anonymity, citing fear of political repercussions.

The sources, who represent creditors to Chrysler, say they were taken aback by the hardball tactics that the Obama administration employed to cajole them into acquiescing to plans to restructure Chrysler. One person described the administration as the most shocking "end justifies the means" group they have ever encountered. Another characterized Obama was "the most dangerous smooth talker on the planet- and I knew Kissinger." Both were voters for Obama in the last election.

One participant in negotiations said that the administration's tactic was to present what one described as a "madman theory of the presidency" in which the President is someone to be feared because he was willing to do anything to get his way. The person said this threat was taken very seriously by his firm.

The White House has denied the allegation that it threatened Perella Weinberg.

Last week Obama singled out the firms that continue to oppose his plan for Chrysler, saying he would not stand with them. Perella Weinberg says it was convinced to support the plan by this stark drawing of a line between firms that have the president's backing and those that did not. They didn't want to be on the wrong side of Obama. Privately, administration officials have expressed confidence that other firms will switch sides for this reason.

These allegations add to the picture of an administration willing to use intimidation to win over support for its Chrysler plans--and then categorically deny it.

from the Wall Street Journal, 2009-May-11, p.A1, by Neil King Jr. and Jeffrey McCracken:

U.S. Forced Chrysler's Creditors to Blink

President Barack Obama's auto task force heard a blunt message early this spring from J.P. Morgan Chase & Co., the largest lender to Chrysler LLC. In any deal to remake the troubled auto maker, Chrysler would have to repay its lenders all $6.9 billion it owed.

"And not a penny less," said James B. Lee Jr., vice chairman at the bank, in a call to auto task-force boss Steven Rattner on March 29.

The next day, Mr. Obama called the banker's bluff. The president stepped before a podium to announce that Chrysler could face a disorderly bankruptcy or even liquidation. His meaning was clear: If that happened, the lenders would get nowhere near $6.9 billion.

A few hours later, Mr. Lee called Mr. Rattner back. "We need to talk," he said.

The banker's about-face was a vivid example of the government's tightening grip on a humbled financial industry. Pulling a trick from the hedge-fund playbook, the government used its leverage as the sole willing lender to Chrysler, either in bankruptcy court or out, to extract deep concessions from some of the country's biggest banks.

The results of these hardball tactics were on display Friday, as the last resisters of a deal to slash the value of Chrysler debt abandoned their effort to fight it in bankruptcy court. That raised the chances for a relatively swift transit through Chapter 11, producing a new Chrysler 55%-owned by a trust for union retirees, 35% by Fiat SpA -- which hasn't even been a Chrysler creditor -- and not at all by the senior secured lenders.

That conclusion would upend a longstanding tradition concerning rights in a bankruptcy: Senior secured lenders usually get paid in full before lower-priority creditors get anything. Not this time.

The White House's role in restructuring Chrysler has sent a shudder through the community of lawyers and lenders in the field of bankruptcy and corporate workouts. Critics complain that the administration has violated a bedrock principle of American capitalism and unfairly demonized financial firms that are vital to the functioning of the economy and its eventual recovery.

Administration officials reply that the Chrysler crisis required bold action. While Chrysler's suppliers, dealers and unionized workers are critical to its survival -- and so is Fiat, which will contribute high-efficiency engines and foreign distribution -- the creditors were expendable.

"You don't need banks and bondholders to make cars," said one administration official.

The administration could exert such leverage because it was convinced big banks were too tarnished in the public eye to put up a fight. They risked being blamed for Chrysler's demise. And if Chrysler had to liquidate, they and other lenders would have to try to recover their money by selling closed auto plants and other assets that are little in demand.

Mr. Rattner forced the issue during the spring negotiations. More than once, he told Mr. Lee: "You can have the company and run it or liquidate it."

This account of the fight among Chrysler, its lenders and the government is based on interviews with dozens of people involved in the negotiations, including bankers, financial advisers, lawyers, union and Chrysler officials and Obama aides.

The struggle began last year when Chrysler and General Motors Corp. faced a potential meltdown. Chrysler went to the lenders that held 70% of its debt -- J.P. Morgan, Citigroup Inc., Goldman Sachs Group Inc. and Morgan Stanley. It wanted to know if they would lend more and if they would provide financing in case Chrysler filed for bankruptcy.

When they said no, the auto maker turned to Washington. Just before Christmas, the Bush administration agreed to lend Chrysler $4 billion, as well as $13.4 billion to GM. The Treasury gave Chrysler three months to reduce its debt and forge a cost-cutting agreement with the United Auto Workers union.

Chrysler turned to the lenders it had just been asking for new loans, but now asked them to agree not to get paid in full for their old loans. It wanted them to chop the $6.9 billion debt to $5 billion. At a meeting in early February, Mr. Lee and other bank executives rebuffed the request. With the government getting so involved in supporting Chrysler, the banks held out for talks with federal officials.

The Obama administration's auto task force held scant hope that all of Chrysler's lenders would agree to a compromise. There were 46 debtholders in all, including many small hedge funds and distressed-debt funds. Most of these had acquired their holdings at a discount on the secondary market. With no consumer operations, they had less reputation on the line than the banks did. In addition, unlike banks, they didn't have to worry about saving Chrysler in order to salvage other loans, to parts suppliers and to Chrysler Financial.

The task force's Ron Bloom, a former investment banker and steelworkers-union negotiator, agreed to handle talks with the UAW and Fiat. Mr. Rattner, co-founder of private-equity firm Quadrangle Group, would take on the lenders. He soon butted heads with Mr. Lee. Known on Wall Street for his suspenders, white collars and deep Rolodex, Mr. Lee, as the senior deal maker at J.P. Morgan, has lent more money to more companies than almost anyone else on Wall Street.

J.P. Morgan faced by far the most Chrysler exposure: $2.7 billion of debt. Monitoring the situation, J.P. Morgan Chief Executive Jamie Dimon called Chrysler Chief Executive Robert Nardelli several times.

Mr. Lee's March 29 demand for full repayment reflected a common view among the creditors. "You lend someone $6.9 billion, you would like $6.9 billion back," said one.

Many of the lenders believed the administration wouldn't let Chrysler file for bankruptcy. "The plan was to call the government's bluff. The game was to game the government," said a manager of a distressed-debt fund.

Then came President Obama's tough talk about the possibility of Chrysler going into bankruptcy or even liquidation, which came just hours after the administration pushed out GM's chief executive, Rick Wagoner. Acting like a bank that is a troubled firm's last hope, President Obama sketched out what Chrysler would have to do to get more federal money.

When Mr. Lee spoke to Mr. Rattner again on March 30, the J.P. Morgan man acknowledged the landscape had changed. He sought a meeting that would bring the lenders to Washington.

Chrysler's four main lenders were already indebted to the Treasury as recipients of loans from the Troubled Asset Relief Program, the government's pool of emergency aid to financial-system titans. Citigroup had received $45 billion; J.P. Morgan, $25 billion; and Goldman and Morgan Stanley, $10 billion each.

Obama aides say they were under White House orders not to use TARP as leverage over the banks. Lawmakers weren't so shy. Rep. Gary Peters, a Democrat whose Michigan district includes Chrysler offices, wrote to the bank CEOs listing their TARP loans and asking them to extinguish most of Chrysler's debt.

Mr. Rattner hosted a meeting of senior bank officers on April 2, in an ornate conference room at the Treasury. They heard presentations from Chrysler's Mr. Nardelli and Fiat Chief Executive Sergio Marchionne. The more than 25 listeners were told that deals with Fiat and the UAW were nearly complete.

When the issue of the $6.9 billion in debt came up, Mr. Rattner looked at the lending group and said, "We have in mind for you a much lower number." He silenced the room by proposing they get just $1 billion.

While that wasn't the administration's bottom line, the task force had determined what was: the amount lenders would get in a liquidation of Chrysler assets. A Chrysler analysis in January estimated that at $2 billion. The UAW and Fiat knew about this figure, and also knew that the task force was first going to offer lenders just $1 billion. But the lenders, having waited so long to engage with the Treasury, were in the dark.

The bankers asked the government team for projections of what a combined Chrysler-Fiat alliance would look like. "If you want a response other than 'No,' something like a counteroffer, then we need those new numbers," Mr. Lee said, according to people present in the room.

In the following days, the lenders began to realize their leverage was small and dwindling. Only the government had the ability or willingness to finance a bankruptcy reorganization of Chrysler, while also supporting its warranties and suppliers and recapitalizing Chrysler Financial. None of the lenders, some of which had consumer operations in the Midwest near Chrysler plants, had any desire to take over and liquidate the company.

Mr. Lee had another problem. Unrest was spreading among creditors as some worried that TARP-recipient banks were open to cutting a deal with the Treasury. Some lenders that hadn't gotten TARP money decided to hire their own lawyer. To calm the smaller debtholders, the banks on April 10 allowed three of them on the group's steering committee: OppenheimerFunds, Stairway Capital Management and Perella Weinberg Partners' Xerion Fund.

The Chrysler-Fiat projections sought from the Treasury didn't arrive until Easter, April 12. By then, deals with Fiat and the UAW had largely been hammered out.

The lenders spent a week haggling over how to respond to Mr. Rattner. The big banks at first proposed the group offer to cut the debt in half and get no equity stake. That outraged some hedge funds and distressed-debt firms that didn't face the banks' broader concerns and that were accustomed to fighting in the trenches for their interests. The reply, sent April 20, reflected the hardening position of the hedge funds: The lenders would cut just $2.4 billion in debt, in exchange for 40% of Chrysler's equity.

The offer landed with a thud. Rep. Peters said the lenders were seeking much more than market value for their debt, "which amounts to a taxpayer subsidy." It was just 10 days until the government's deadline to reach agreements with the UAW, Fiat and lenders if Chrysler was to get more government money.

After receiving one more bank counteroffer, the Treasury on April 28 offered what it had planned all along, to buy out the lenders for $2 billion. The only sweetener was that it would be in cash, meaning the lenders didn't have to wait for a reorganized Chrysler-Fiat to pay it.

Mr. Rattner called Mr. Lee: "It's $2 billion, take it or leave it."

The big banks quickly agreed to the deal -- equal to 29 cents on the dollar. Though that offered a profit to a few firms that bought debt as low as 15 cents on the dollar, most of the lenders had paid 50 cents to 70 cents, and the banks 100 cents. News that the big banks were accepting the offer leaked before they had told the smaller lenders. "To say the least, we were floored," says one.

Mr. Lee was nonetheless intent on winning 100% approval from debtholders, to give the government the option of avoiding a Chrysler bankruptcy filing. He asked the Treasury to raise its offer by $250 million, which it grudgingly agreed to do if the lenders answered within 90 minutes. After a flurry of last-minute calls, about 20 firms, mostly small hedge funds, voted no.

At noon the next day, April 30, Mr. Obama said Chrysler would file for bankruptcy. He blamed "speculators" who had turned down the $2 billion offer for their $6.9 billion of debt. A lawyer for holdout firms, Tom Lauria, accused the White House of threatening to destroy the reputation of Perella Weinberg. The White House denied exerting pressure on it. Mr. Lauria's clients took their fight into bankruptcy court last week, imperiling the administration's plan to guide Chrysler into and out of court swiftly. But on Friday, the holdouts abandoned the fight as too costly, financially and politically.

"The overarching sense of political pressure," Mr. Lauria said, "remained out there till the end."

from the Wall Street Journal, 2009-May-11, Paul Ingrassia:

How Ford Restructured Without Federal Help
The company is now at a disadvantage to its less prudent rivals.

Dearborn, Mich.

You're forgiven if you think the Chrysler Bailout is a hot new car that competes with another model called the GM Rescue. Then there is the Ford Forego, brought to us by the only Detroit auto maker to forego government assistance, at least so far.

That's good for the taxpayers and for Ford, right? Well, maybe not. While General Motors and Chrysler will emerge from the government restructuring wringer with significantly reduced debt, Ford will still likely be obliged to repay its lenders. This could put Ford at a competitive disadvantage -- an unfortunate irony for the one Detroit car company that has gotten the decisions mostly right in the last few years.

Ford also might emerge from the current crisis as the largest American auto maker for the first time in more than 80 years. GM had 18.6% of the market in the first quarter of this year to Ford's 14.7%. But GM's lead could be wiped out when the company sheds four or five brands to satisfy President Barack Obama's automotive task force.

True, "Largest American Car Company" might by a pyrrhic title these days. Ford just posted a $1.4 billion loss for the first quarter of 2009, after cumulative losses of $30 billion for the prior three years. During those same three years, however, Ford revamped its product offerings to the point where it soon will have a coherent lineup for the first time in a decade. That's a big turnabout for a company whose auto lineup was so unappealing a few years ago that it almost abandoned cars entirely to focus on SUVs and trucks.

In Ford's last big comeback, its midsize sedan, the Taurus, popularized aerodynamic styling and became the best-selling car in America in the mid-1990s.

What happened next would be criminal, except there aren't laws against corporate stupidity. Ford didn't invest to keep the Taurus competitive. Then it announced in 2004 it would kill the Taurus name -- until new CEO Alan Mulally ordered a stay of execution two years later.

The 2010 Taurus, which debuts next month, is a brand new start with sharp styling and the same $25,995 base price as the old, lackluster model. For more money you can add high-tech gadgetry such as forward-looking radar, adaptive cruise control, and a collision-warning system that applies the brakes when you get too close to the car in front of you. Together, these gizmos will allow you to drive from Detroit to Chicago without hitting either the brake or the accelerator. (I wouldn't suggest trying it, however.)

Ford's new Fusion Hybrid, meanwhile, gets 41 miles to the gallon in the city, versus 33 mpg for the Toyota Camry hybrid (with a similar price tag). The difference comes from lots of little things. Ford narrowed the slots on the wheel covers and changed the design of the fog lights, for example, to reduce aerodynamic drag.

Ford announced last week that it's reconfiguring a truck plant in Wayne, Mich., to build the new Focus compact. And a year from now the high-mileage subcompact Fiesta, engineered in Europe, will hit these shores. The Fiesta trails the Honda Civic and the Toyota Yaris in its time of entry to the U.S. market, but the vehicle's sleek styling will make it the best-dressed girl at the dance.

All this begs the question: How did the company develop all these new cars while losing so much money in recent years? The simple answer is that it borrowed billions from private lenders.

In late 2006, shortly after Mr. Mulally arrived from Boeing, the company mortgaged its factories, its equipment, and its real estate. Much of the impetus for this fund raising came from the company's now-departed chief financial officer, Don LeClair, whose pessimistic prognostications irked his colleagues but who proved prescient nonetheless. The company raised $23.6 billion -- the world's largest "home-improvement loan," as Ford officials said at the time -- to finance a complete product overhaul. That's right. There's wasn't a dime of government assistance.

Rival GM also raised money in 2006. Instead of mortgaging assets, however, the company sold 51% of its GMAC financial-services arm to Cerberus (the same private-equity firm that bought Chrysler a year later).

GMAC is now a bank holding company -- and it is reeling from losses of billions of dollars in the subprime mortgage market. GM, meanwhile, burned through its money faster than Ford, which was making tough decisions that GM ducked. Specifically, Ford sold off such cash-draining operations as Jaguar and Land Rover, while GM held on to its outmoded lineup of eight different U.S. brands. As a result, its standout cars -- such as the Chevy Malibu and Cadillac CTS -- got lost in the clutter.

Last week, GM reported a $6 billion loss for the first quarter. The company wants to wipe away 90% of its $27 billion in unsecured debt as part of its path to viability. But to do that it will almost certainly have to follow Chrysler into bankruptcy court. That will be the cleanest and quickest way for GM to get relief from obligations that it can't afford to meet. Beyond this, GMAC's status as a bank holding company qualifies it for government assistance that Ford's lending arm, Ford Motor Credit, can't get.

You can see where this leaves us. Ford has about $26 billion in automotive debt -- about the same as GM's $27 billion. Ford's debt is secured by its assets. And secured lenders must be repaid -- unless they happen to be Chrysler lenders and get clipped by a company bankruptcy plan that's backed by President Obama.

Ford's repayment schedule will be revealed today when the company files its 10-K, the comprehensive annual performance report, to the Securities and Exchange Commission. So Ford is like a homeowner who planned prudently and can pay his mortgage, while his spendthrift neighbors get their mortgage reduced by some new federal program.

Ford executives are probably fretting about this, but there isn't much that can be done. They already have exchanged some of their debt for equity, and might do more of that. But the bottom line is that we live in a world where wisdom can be punished and where foolishness can be rewarded.

Ford certainly wouldn't want to trade places with GM or Chrysler right now. Let's just leave it at that.

Mr. Ingrassia, a former Dow Jones executive and Detroit bureau chief for this newspaper, is writing "Crash Course," a book about the auto industry's crisis that will be published next year by Random House.

from the Future of Freedom Foundation, 2009-Apr-16, by Jim Powell:

FDR and Compulsory Unionism Destroyed Jobs

For decades, labor unions struggled for power, but until the 1930s they had made little headway.

Unions were based on force and violence, which repelled a substantial number of employees as well as employers. The aim had been to raise the wages of members above market levels, but this was only possible if they went on strike, forcibly prevented employers from hiring other employees, shut down businesses, and ultimately forced employers to accept union demands. Union bosses talked about securing the “right to strike,” but they didn't mean the right to quit which everybody already had. In practice, the “right to strike” meant the right to forcibly prevent others from filling jobs that strikers had left.

Union bosses proclaimed the ideal of “collective bargaining,” even described this as the essence of “industrial democracy,” but what they sought was compulsory unionism — a labor market monopoly. They weren't satisfied if some of a company's employees chose to join one union, while others joined another union, and still others continued to bargain individually on their own. Union bosses demanded a “closed shop” that made union membership a condition of employment.

Until the 1920s, as far as labor issues were concerned, U.S. courts generally respected individual rights. Employers could choose their employees freely, and employees could choose among employers freely, and either could deal with a union or not as they wished. Employers who hired employees on an “at will” basis were free to let them go for any reason or no reason at all, just as “at will” employees could quit for any reason or no reason at all. Terms of employment depended on supply and demand. Because of the growing American economy, wages were in a long-term uptrend before compulsory unionism became a force to reckon with.

When unions were violent, courts sometimes provided equity relief by issuing injunctions to stop the violence. Often injunctions prodded police to do their job of protecting life and limb. Historian Howard Dickman reported, “the lion's share of injunction cases involved physical coercion of the nasty variety.”

On March 23, 1932, President Herbert Hoover signed into law the Norris-LaGuardia Anti-Injunction Act. Among other things, Norris-LaGuardia exempted labor unions from the Sherman Antitrust Act. Even when unions used violence in an effort to stop production or stop the interstate shipment of goods, they couldn't be prosecuted under the Sherman Act for acting “in restraint of trade.” Moreover, Norris-LaGuardia declared that federal courts couldn't protect companies and non-union members from labor union violence by issuing injunctions to cease and desist.

New York Senator Robert F. Wagner, Sr. introduced a bill to promote compulsory unionism. This became the National Labor Relations Act, also known as the Wagner Act, that FDR signed on July 5, 1935. Section 7 provided that employees could be bound by “an agreement requiring membership in a labor organization as a condition of employment.”

The Wagner Act provided that if 30 percent of employees signed a petition for a certification election to determine whether a union would negotiate on behalf of all the workers, it must be held. The Wagner Act did not require periodic elections to determine whether workers wanted to remain with the first union or choose to be represented by another union or no union at all. If this principle were applied to the government sector, we might never have had another election after the first one more than two centuries ago.

Backed by the Wagner Act, labor union bosses moved aggressively to monopolize labor markets in mass production industries. For example, 28-year-old Walter Reuther, a socialist visionary, emerged as a leader of the United Auto Workers. On December 30, 1936, 1,500 UAW members (out of 42,000 employees) seized control of Fisher Body Plant No. 1 owned by General Motors in Flint, Michigan. They stopped the assembly line and staged a sit-down strike. Eventually, the company caved, agreeing to negotiate only with the UAW and let it force all factory employees to become members. The strikers finally left the plants on February 11, 1937. During the next several months, the UAW recruited some 40,000 new members from five GM factories and several dozen smaller companies. Granting the UAW a bargaining monopoly didn't bring peace, however. The union struggled to gain more and more power over wages, seniority, the pace of work and other issues.

Unions succeeded in gaining above-market wages for their members. Wages increased more than 11 percent in 1937 and another 5 percent in 1938 — amidst America's worst depression. But as a result, the unions priced their members right out of the market. Consumers couldn't afford to pay higher car prices that reflected costly union contracts, and sales plunged. Between November 1937 and January 1938, GM dismissed a quarter of its employees. Thousands of unemployed auto workers abandoned the UAW, and by 1939 only 6 percent of GM employees were paying UAW dues.

In one industry after another, union bosses gained bargaining monopolies and negotiated contracts calling for above-market compensation as well as restrictive work rules. But consumers have had the last word. U.S.-based unionized companies in the textiles, garment, steel, automobile, newspaper, and other industries have either gone bankrupt, gone offshore, or are in serious trouble, and private sector union membership is about the lowest it has been in the past half-century. That's why union bosses want the government to bail them out now.

Jim Powell is policy advisor to the Future of Freedom Foundation and a senior fellow at the Cato Institute. He is the author of FDR's Folly, Bully Boy, Wilson's War, Greatest Emancipations, The Triumph of Liberty and other books.

from the Wall Street Journal, 2009-May-7, p.A15, by George S. McGovern:

The 'Free Choice' Act Is Anything But
George Meany and binding arbitration.

The recent news that Pennsylvania Sen. Arlen Specter has become a member of the Democratic caucus has given new life to legislation that many thought had been put to rest for this Congress -- the Employee Free Choice Act (EFCA).

Last year, I wrote on these pages that I was opposed to this bill because it would eliminate secret ballots in union organizing elections. However, the bill has an additional feature that isn't often mentioned but that is just as troublesome -- compulsory arbitration.

This feature would give the government the power to step into labor disputes where employers and labor leaders cannot reach an agreement and compel both sides to accept a contract. Compulsory arbitration is bound to trigger the law of unintended consequences.

Currently, labor law maintains a careful balance between the rights of businesses, unions and individual employees. While bargaining power differs depending on individual circumstances, the rights of the parties are well balanced. When a union and a business enter negotiations, current law requires that both sides bargain "in good faith."

In a contract negotiation, each party typically perceives the other as too demanding. But no one loses their right to contract willingly or suffers being forced to agree to anything. Employees can strike if they feel that they have been dealt with unfairly, but it is a costly option. Employers are free to reject labor demands they find to be too difficult to accept, but running a business without experienced employees is itself difficult. Both sides have an incentive to press their demands, but they also have compelling reasons not to press their demands too far. EFCA would disrupt that balance by enabling government-appointed lawyers to decide what they believe is fair or reasonable.

A federally appointed arbitrator cannot be expected to understand the nuances specific to each business dispute, the competitive market position of the business, or the plethora of other factors unique to each case. Yet fundamental decisions on wages and benefit costs, rules for promotions, or even rules for exiting an unprofitable line of business could fall to federal arbitrators under EFCA.

Many labor contracts can run over 100 pages with their requirements of each party. Compulsory arbitration is, in one sense, government dictating to employees what they will win or lose in the deal, with no opportunity to approve the "agreement." Why should employees pay union dues to get such a contract?

My perspective on the so-called Employee Free Choice Act is informed by life experience. After leaving the Senate in 1981, I spent some time running a hotel. It was an eye-opening introduction to something most business operators are all-too familiar with -- the difficulty of controlling costs and setting prices in a weak economy. Despite my trust in government, I would have been alarmed by an outsider taking control of basic management decisions that determine success or failure in a business where I had invested my life savings.

When it comes to labor disputes, both parties should be guaranteed a real chance for compromise under the joint economic threat of contract breakdowns. George Meany, president of the AFL-CIO for nearly 30 years before retiring in 1979, had it right in condemning mandatory arbitration as "an abrogation of freedom."

My party has well-deserved majorities in both houses of Congress, and I am thankful to have an exceptional president in Barack Obama. But while the Democratic majority in Washington confers the power to reward our loyal supporters, today's problems require solutions that transcend party politics. Even when that means taking unpopular stands.

Mr. McGovern is a former senator from South Dakota and the 1972 Democratic presidential candidate.

from the Wall Street Journal, 2009-Apr-16, by Pete du Pont:

Sapping America's Energy
Global-warming legislation would drive up the cost of everything.

If Americans don't start paying attention to what Congress is up to, our nation's energy policy may seriously change for the worse. A bill styled the American Clean Energy and Security Act, sponsored by Democrats Henry Waxman of California and Edward Markey of Massachusetts, soon goes before the House. The enactment of laws to combat global warming is an established priority of the new administration and Congress, and their impact on the lives and opportunities of America's people would be substantial and detrimental.

As Myron Ebell of the Competitive Enterprise Institute noted last month, "Waxman-Markey would put big government in charge of how much energy people can use. It would be the biggest government intervention in people's lives since the second world war, which was the last time people had to have rationing coupons in order to buy a gallon of gas." And for what? According to the U.N. Intergovernmental Panel on Climate Change, the Earth's average rate of warming in the 30 years from 1977 to 2007 was just 0.32 degree Fahrenheit per decade, and the global surface temperature has remained virtually flat since 1998.

The Waxman-Markey bill contains some serious mistakes. Slighting nuclear power is one. Nuclear plants generate no carbon dioxide or other pollution, and the 104 already in operation provide America with 73% of its CO2-free electricity generation. It is estimated that each new nuclear plant would employ some 2,000 workers to build and 500 to 600 people to operate. America could use some 40 more nuclear plants, but in the Waxman bill and the Obama administration's policies, additional nuclear power plants are likely nonexistent.

Cap-and-trade policies are another part of the bill intended to give the government more regulatory authority over the energy industry and a great deal more money--perhaps trillions of dollars--some of which would be available to grant to favored people and industries. The bill's outline does not say who would the energy allowances free, who would have to pay for them, and how much they would pay, but it does intend to make energy much more expensive and less available to consumers. Electricity, oil and large manufacturing businesses (which are jointly responsible for 85% of America's greenhouse emissions) would have to obtain at some price federal government pollution permits--"tradable federal permits," or "allowances," for each ton of CO2 emitted into the atmosphere. These permits would require reduced plant emissions over time, from a mandate of 3% below 2005 levels in 2012, to 20% in 2020, 42% in 2030, and 83% in 2050.

Another economic mistake at the core of the Waxman bill is the reinstatement of protectionism. Since America's energy restrictions would not apply to manufacturers of goods America imports, unregulated foreign companies could sell their goods in America at lower costs, and thus U.S. manufacturers could be "put at a disadvantage relative to overseas competitors." The Waxman bill would seek to remedy this by making companies eligible for rebates determined and allocated by Washington. If the president found that the rebates "do not substantially correct competitive imbalances" he could establish what Mr. Waxman calls a "border adjustment program" that would require foreign companies to pay for special allowances to "cover" the "carbon contained in U.S.-bound products."

In other words, America would add an international carbon tariff--a global energy tax--to imported goods (just as there was in the Boxer-Lieberman bill that was defeated last year). That would amount to strong protectionism and lead to matching tariffs on goods exported from America.

Not included in the Waxman discussion draft summary is the question of what will become of the cash the government would receive from selling the cap-and-trade allowances. In the Boxer-Lieberman bill, it was estimated that auctioning off half the permits would gain the government some $3.3 trillion by 2050, and that would be handed out by the government to pet projects like "environmental" job training, "wildlife adaptation," international aid, domestic mass transit and so on.

But rather than creating a new subsidy, wouldn't we be better off distributing those revenues to the American people, who would have to pay the carbon tax through higher-priced electricity and manufactured goods? Such an idea was recently offered by author Peter Barnes: send the trillions of dollars received from the companies buying the permits to people as a "cap-and-trade dividend" in the form of equal personal checks for all Americans. The Obama administration thinks the opposite--that a majority of the money raised by cap-and-trade should be sent only to taxpayers making under a certain amount as a part of his Making Work Pay credit.

The Waxman-Markey plan intends to give the federal government near-total control of America's energy supplies and usage. Depending upon how the allowances are organized, it may also create the largest redistribution of money from American families to the federal government since the creation of the American income tax. To keep America prospering, our economy growing, and jobs expanding, we need not less energy, but more of it; not higher energy prices but lower ones; and more energy generation through nuclear power, clean coal and offshore oil and gas as well as possible new energy sources. Waxman-Markey will take us in one direction, but to keep America prospering we need to go in the opposite one.

from Reuters, 2009-Apr-23, by Michael Szabo and Alister Doyle, with editing by William Hardy:

Rich nation greenhouse gas emissions rise in 2007

LONDON/OSLO - Greenhouse gas emissions from industrialized nations rose by nearly one percent in 2007, led by strong gains in the United States, official data showed.

Carbon emissions from countries signed up to the Kyoto Protocol climate pact edged up by 0.1 percent in 2007, mainly due to rises in Japan and Canada.

"The numbers are ... a bit depressing," said Knut Alfsen, research director at the Center for International Climate and Environmental Research in Oslo, saying they showed a failure to shift away from fossil fuels. "It shows that we are not able to de-link economic growth from emissions."

Although 2007 carbon dioxide (CO2) figures from a few economies including Australia and Ukraine were not yet available, comparing like-for-like figures showed emissions from countries with targets under Kyoto were 14 percent below 1990 levels, exceeding their goal of a 5 percent reduction by 2012.

The full 2007 data including the U.S. and Turkey, which do not have targets under Kyoto, showed that industrialized emissions were 2.1 percent below 1990 levels.

Under Kyoto, 40 or so developed countries committed in 1997 to cut their greenhouse gas emissions by an average of 5.2 percent below 1990 levels between 2008-2012. Since then, the U.S., historically the world's biggest emitter, has decided not to ratify the treaty.

U.N. climate scientists warn that rising atmospheric CO2 levels will cause global temperatures to increase, which in turn could trigger widespread disease, famine, flooding and drought.

Experts said global emissions are likely to fall in 2008 and 2009 due to lower industrial production and fossil fuel consumption as a result of the economic downturn, but they stressed that more needs to be done to prevent world temperatures from rising by over 2 degrees Celsius, a dangerous threshold according to scientists.

Barry Brook, a climate change professor at the University of Adelaide in Australia, said that even if the recession cuts emissions in developed nations, global atmospheric CO2 levels will continue to be high and "probably still higher in 2009 than in any other year before."

"The Chinese and Indian economies, for instance, are not contracting -- they're just not growing as fast. It would take a massive and sustained global recession to noticeably curb emissions growth without directed energy policy," he added.

Brook said most nations "have virtually no chance" of meeting cuts of 25-40 percent below 1990 levels by 2020 that UN scientists say are needed to avert the worst of global warming.

RESULTS

The U.N. data showed that like-for-like industrialized emissions grew by 145 million tonnes in 2007, with the U.S. accounting for over 100 million tonnes of that. The U.S. emitted 7.1 billion tonnes of CO2 in 2007.

The biggest percentage increases came from Estonia and Turkey, with emissions up by 14.8 and 12.0 percent respectively.

Germany saw the largest net decrease, cutting its CO2 by 23.9 million tonnes or 2.4 percent, while tiny nation state Liechtenstein and renewable energy leader Denmark made the deepest percentage cuts, chopping CO2 by 10.8 and 6.2 percent.

The 27-nation European Union cut its emissions by 1.4 percent to 5.03 billion in 2007, 12.3 percent below 1990 levels.

Nearly half of signatory nations have already hit their Kyoto goals, though much of this can be attributed to economic restructuring and the closure of industry in eastern Europe following the collapse of the Soviet Union, rather than through investment in cleaner energy or energy efficiency.

Canada's emissions have grown alongside its economy, boosted by stronger energy prices, though Ottawa has said it is unlikely to reach its 6 percent Kyoto reduction target. Canada's emissions rose by 4 percent in 2007, putting the country's CO2 at 29 percent over 1990 levels.

With a rise of 2.3 percent in 2007, Japan is also significantly above its own 6 percent reduction target, but is buying emissions rights from other nations that have cut CO2.

from the Wall Street Journal Asia, 2009-May-8, p.A12:

Cap-and-Trade Backflip
Kevin Rudd realizes how much an emissions-trading scheme will cost Australia.

Kevin Rudd likes to talk about showing moral leadership for the world on climate change. But the better example for other governments to follow is the Australian Prime Minister's backtrack on a costly emissions trading scheme.

Mr. Rudd announced on Monday that he will delay implementation of his trademark cap-and-trade proposal until at least 2011. With luck, that will be after the clouds of a global economic slowdown have started to clear and -- more important for Mr. Rudd's Labor Party -- after the next parliamentary election.

The draft Mr. Rudd floated in March would have imposed total carbon permit costs (read: taxes) of 11.5 billion Australian dollars (US$8.5 billion) in the first two years, starting in 2010. This would have increased consumer prices by about 1.1% and shaved 0.1% off annual GDP growth until at least 2050, according to Australia's Treasury. All for negligible green gain, since Australia accounts for only 1.5% of global greenhouse gas emissions. No wonder it's been hard to win support from business groups and individuals who earlier professed enthusiasm for cap-and-trade.

The proposed delay is widely characterized as a "backflip" and has caused Mr. Rudd a lot of embarrassment this week. He may yet push ahead with legislation in some form -- as he certainly promised to do when running in the 2007 election. But it's becoming clear the proposal won't be a shoo-in, despite all the votes Mr. Rudd won when he campaigned on environmentalism.

This is yet another example for politicians elsewhere toying with cap-and-trade. Support for Australia's plan started fading as the costs became clear. The green left hopes no one will notice inconvenient details like money. But voters do.

from the Associated Press, 2009-Apr-28, by Dina Cappiello with Natasha T. Metzler contributing:

US more optimistic about climate deal after talks

WASHINGTON — The top U.S. negotiator on climate change said Tuesday that he is slightly more optimistic about striking a new international agreement to curb global warming after a two-day meeting with the world's largest emitters of greenhouse gases.

Todd Stern, the U.S. special envoy for climate change, told reporters at a briefing Tuesday that he is "a bit more optimistic" that the U.S. will be able to broker a new deal in Copenhagen in December.

But he warned that it is not going to be easy, since many of the potential sticking points for a new global pact still need to be worked out.

"I walk away more optimistic," Stern said at the conclusion of the Major Economies Forum on Energy and Climate. "It does not change the fact that the issues are extremely difficult, that it is not going to be easy to reach agreement, or we wouldn't be doing this."

The Washington meeting is the first of a series of three called for by President Barack Obama. The goal is to help broker a replacement to the 1997 Kyoto Protocol, the international climate treaty that expires in 2012, and to build support for the development of pollution-reducing technologies.

The U.S. never signed onto Kyoto, citing the costs to the economy and the lack of participation by developing countries like India and China.

Those two issues continue to loom over negotiations more than a decade later. But the Obama administration has said it is committed to overcoming them in order to reach a deal.

At the two-day meeting, the administration showed participants it was serious.

Representatives of the 16 major economies present heard presentations from a host of top-level officials, including Secretary of State Hillary Rodham Clinton, Energy Secretary Steven Chu and White House science adviser John Holdren. Together with the United States, the represented countries account for 80 percent of the global emissions of heat-trapping gases.

Late Monday afternoon they attended a reception at the White House with Obama.

"We come out of it more encouraged about the commitment of all the participants, particularly the United States," said Joao Vale de Almeida, the head of the European Union delegation. "The most important change as we started this meeting was of course the position of the United States. This means the U.S. is fully back in the debate and because of that we are back in business in terms of finding a global solution to a global challenge."

But behind the scenes, two key issues still pose challenges: how much rich countries will pledge to reduce climate-changing pollution and how to raise an estimated $100 billion a year to help poor countries adapt to climate change.

The Obama administration has called for a 14 percent to 15 percent reduction in greenhouse gas emissions from 2005 levels by 2020 and legislation before Congress would reduce such emissions by 20 percent by 2020. Developing countries and the European Union are pressing the U.S. to make deeper cuts.

Stern said these were the two numbers on the table for the U.S.

"What I said to the delegates is that you effectively got a United States number there. It is somewhere in that range," Stern said.

But Yvo de Boer, head of the United Nations climate change secretariat, said that even the reductions being talked about by industrialized nations aren't enough to avoid rising sea levels, harsher storms and droughts. That would require a 25 percent to 40 percent reduction in global emissions.

"It wasn't all sweetness," de Boer said. "Those numbers are still very far from what the scientific community tells us" needs to be done.

Germany's environment minister said Tuesday that the Obama administration's approach to tackling climate change was "the difference between day and night" in comparison with the Bush administration. But Sigmar Gabriel said that the Obama administration's goals for limiting carbon emission were not ambitious enough.

He said the U.S. needed to commit to bigger cuts than than the administration or congressional Democrats have indicated they are considering "The ambitions of the United States targets are too low," he said.

The meeting never got around to addressing the financing issue. They ran out of time.

The next meeting is scheduled for May in Paris.

from Investors Business Daily, 2009-May-8, by Robert J. Samuelson:

Demystifying The Great U.S. Tax Dodge

Like it or not, ours is a world of multinational companies. Almost all of America's brand-name firms (Coca-Cola, IBM, Microsoft, Caterpillar) are multinationals, and the process works both ways. In 2006, the U.S. operations of foreign firms employed 5.3 million workers. Fiat's looming takeover of Chrysler reminds us again that much business is transnational.

For most people, the multinational company is a troubling concept. We like to think "our companies" serve the broad national interest rather than just scouring the world for the cheapest labor, the laxest regulations and the lowest taxes. And the tax issue is especially vexing: How should multinationals be taxed on the profits they make outside their home countries?

But listen to President Obama, and the status quo seems a cesspool. Pervasive "loopholes" engineered by "well-connected lobbyists" let U.S. multinationals skirt taxes and outsource jobs to low-tax countries.

So the president proposes plugging loopholes. Some jobs will return to the United States, and U.S. tax coffers will grow by $210 billion over the next decade.

Sounds great — and that's how the story played. "Obama Targets Overseas Tax Dodge," headlined the Washington Post. But the reality is murkier; the president's accusatory rhetoric perpetuates many myths.

Myth: Aided by those overpaid lobbyists, American multinationals are taxed lightly — less so than their foreign counterparts.

Reality: Just the opposite. Most countries don't tax the foreign profits of their multinational firms at all. Take a Swiss multinational with operations in South Korea. It pays a 27.5% Korean corporate tax on its profits and can bring home the rest tax-free.

By contrast, a U.S. firm in Korea pays the Korean tax and, if it returns the profits to the United States, faces the 35% U.S. corporate tax rate. American companies can defer the U.S. tax by keeping the profits abroad, and when repatriated, companies get a credit for foreign taxes paid. In this case, they'd pay the difference between the Korean rate (27.5%) and the U.S. rate (35%).

Myth: When U.S. multinationals invest abroad, they destroy American jobs.

Reality: Not so. Sure, many U.S. firms have shut factories and opened plants elsewhere. But most overseas investments by multinationals serve local markets. Only 10% of their foreign output is exported back to the U.S. When Wal-Mart opens a store in China, it doesn't close one in California.

On balance, all the extra foreign sales create U.S. jobs for management, research and development (almost 90% of American multinationals' R&D occurs in the U.S.), and the export of components. One study estimates that for every 10% increase in U.S. multinationals' overseas payrolls, their American payrolls increase almost 4%.

from the Wall Street Journal, 2009-May-6, p.A14:

Obama's Global Tax Raid

President Obama revealed Monday that he's half a supply-sider. If only someone could explain to him the other half. We have a tax code, the President said, "that says you should pay lower taxes if you create a job in Bangalore, India, than if you create one in Buffalo, New York." That sounds like a great argument for lowering taxes on the guy creating jobs in Buffalo. Alas, that's not what he has in mind.

Set aside that India is a poor example to make Mr. Obama's point, since its corporate tax rate on foreign-owned companies can be as high as 55%. The President's argument is that U.S. tax-deferral rules make it more expensive for American companies to reinvest overseas profits at home than abroad. This, he claims, creates a perverse incentive for companies to "ship jobs overseas" and reduces investment and job creation in the U.S.

He's right, except that his proposals would only compound the problem. His plan would limit the tax deferral on income earned abroad by tightening the rules, limiting allowable deductions and restricting eligibility for foreign-tax credits. This "solution" is antigrowth, job-destroying, protectionist and unlikely to raise the tax revenue Mr. Obama predicts. Other than that . . .

The current tax-deferral system is a clumsy attempt to deal with the fact that most other countries don't tax their companies' overseas profits. A German firm doing business in Ireland, say, pays no German income tax on its Irish profits, but it does pay Ireland's corporate income tax at its 12.5% rate. The U.S. company competing with that German business in Ireland, by contrast, pays Ireland the same 12.5% on its profits -- and it then pays Uncle Sam up to 35%, minus a credit for what it paid the Irish. And because almost everyone else's corporate tax rates are lower than America's (see nearby table), U.S. companies end up paying higher taxes than their international competitors.

America the Uncompetitive
combined (central, regional and local governments) corporate tax rate, 2008
Japan39.54%
U.S.39.25
France34.43
Germany30.18
U.K.28
Korea27.50
Netherlands25.50
Czech Republic21
Ireland12.50
Source: OECD

Congress long ago created the corporate tax deferral to compensate for this competitive disadvantage. Under deferral, a company doesn't have to pay the U.S. corporate rate until it repatriates its earnings. It can retain them overseas or reinvest them abroad with no penalty. But if it brings them home or pays them as dividends, the tax bill comes due.

The German company faces no such quandary. It pays the Irish tax, and it's free to invest that money in Ireland or Germany or anywhere else. This territorial tax system, embraced by most of the world, eliminates the perverse incentive to hold money abroad that America's deferral system creates. Adopting a territorial system would be the most obvious and simplest way to eliminate the distortion that tax deferral creates. Alternatively, Mr. Obama could lower the U.S. corporate tax rate to a level that is internationally competitive.

Yes, we know: Few major U.S. companies pay 35% of their profits in taxes because of the foreign tax-deferral and other deductions, credits and loopholes. But that's precisely why Mr. Obama should want to take the better path to corporate tax reform by reducing the rate and removing loopholes. America now has the worst of both worlds -- a high statutory rate and a tax code so riddled with complexity that it is both expensive to administer and inefficient at collecting revenue. And yet Mr. Obama's proposal to limit deferral only layers on the complexity.

In promoting its new global tax raid, the White House fingered the Netherlands, which it lumped with Ireland and Bermuda as "small, low-tax countries" that supposedly account for an outsize share of reported foreign profits of U.S. firms. The Dutch corporate tax rate is 25.5% -- which isn't even all that low by current European standards. And the U.S. is the largest foreign investor in that "small, low-tax country," according to the Dutch Embassy. Perhaps reducing American investment there and slamming the Netherlands as a tax haven is Mr. Obama's way of reaching out to friends and allies.

But the Netherlands won't be the only country hurt. The explicit goal of this plan is to reduce the incentive for U.S. companies to invest abroad, which Mr. Obama derisively calls "shipping jobs overseas." Foreign companies may relish the loss of U.S. corporate competitiveness that his proposal will bring in the short term. But in the long term, reducing U.S. investment globally will hurt everyone. And that investment is a two-way street -- the Netherlands is also the fourth-largest foreign investor in the U.S.

Some of Mr. Obama's advisers understand all this, but then their real goal isn't tax reform or U.S. competitiveness. It's a revenue grab, one made easier by the fact that overseas tax "avoidance" is easily demagogued. To that political end, Mr. Obama conflates tax deferral with the offshoring of jobs -- hence the sly reference to Bangalore, India. With trillions of dollars of new spending, the White House and Treasury are desperate for new tax sources to pay for it all.

But even as a revenue raiser, this is likely to fail. Fewer companies will keep their headquarters in the U.S., especially small or mid-sized firms that can slip away without becoming a political target. Those companies that can't flee will sooner or later demand relief from Congress, which will be happy to create even more loopholes.

If Mr. Obama's proposal has a silver lining, it is that he has embraced the principle that tax rates matter to investment decisions. If his new and short-sighted proposal becomes law, he and all Americans will discover just how much.

from the Wall Street Journal, 2009-May-4, p.A1, by John D. McKinnon and Jesse Drucker:

Firms Face New Tax Curbs
Obama Plan Aims to Limit Use of Offshore Havens by Multinationals and the Wealthy

WASHINGTON -- The Obama administration will roll out details Monday of what aides are calling a far-reaching crackdown on offshore tax avoidance, targeting many U.S.-based multinational corporations and wealthy individuals.

President Barack Obama will flesh out a proposal included in his February budget blueprint seeking to curb the practice of parking foreign earnings in offshore tax havens indefinitely. By some estimates, $700 billion or more in U.S. corporate earnings have accumulated in overseas accounts in recent years.

The plan to be announced Monday will go further. It aims to change the legal treatment of offshore subsidiaries and structures that companies have used to avoid not only U.S. taxes, but taxes in other developed countries as well.

In addition, the administration will strive to tighten rules that have encouraged thousands of Americans to open offshore bank accounts in an effort to duck U.S. taxes. The plan would increase information reporting and tax withholding as well as penalties, and make it harder for foreign account-holders to win cases in court. The administration promised new enforcement tools to crack down on tax-haven abuse.

"What we really have is a system that is in many ways broken," a senior administration official said Sunday, one that "allows people to play games...to almost completely avoid paying taxes on active foreign earnings."

The sweep of the administration's plan took some tax experts by surprise, and foreshadows potential fights with big businesses later this year over some of their most cherished breaks, particularly as Congress looks for revenue to pay for new initiatives.

"There absolutely will be" opposition from business, particularly if the administration doesn't allow a suitable adjustment period, said Phil West, a lawyer with Steptoe & Johnson LLP, who was international tax counsel for the Treasury Department under President Bill Clinton.

The president's announcement comes as he prepares to release a more detailed budget blueprint later this week. And the high-level attacks on big business follow a series of White House broadsides on corporate practices. Mr. Obama riled Wall Street last week by crafting a bankruptcy deal for Chrysler LLC that favored the United Auto Workers union over a series of lenders.

White House officials said the latest proposals simply follow through on Mr. Obama's frequent criticism that current U.S. tax rules encourage multinationals to move jobs overseas. The new tax plan also aims to increase incentives for job creation in the U.S., they said, noting that some of the money raised would be used to cover the cost of extending a soon-to-expire federal tax credit for research costs.

Many of Mr. Obama's proposals will require congressional approval. And while Democrats control both houses of Congress, many members of his own party have expressed reluctance about raising taxes, so prospects for the proposals are uncertain, even though none would take effect until 2011.

A senior Republican aide termed the proposals a "revenue grab," predicting they could end up driving more corporate operations overseas. Some or all of the changes could become fodder for broader tax reform next year.

"If rules are changed on tax deferral and we are taxed in the U.S. on non-U.S. profit, this significant additional U.S. tax cost would adversely impact our ability to invest and grow our business in the U.S....and to compete against our foreign competitors who are not subject to this U.S. tax," said John Earnhardt, a Cisco Systems Inc. spokesman.

The president's tax announcement, to be made with Treasury Secretary Timothy Geithner, is part of an administration plan to raise as much as $210 billion in extra tax revenue over the next decade, in an effort to trim budget deficits and pay for job-creation incentives and other programs.

The plan takes aim at a range of financial practices that have combined to erode the U.S. tax base in recent decades. As money has become more readily transferable -- and aggressive tax planning more widespread -- it has become easier for companies and individuals to take advantage of low taxes as well as lack of transparency in many offshore havens.

In one big change, the administration is aiming to curb a practice commonly known as "deferral," which U.S. multinationals use to shave their tax bills on their overseas operations.

Under current law, U.S. companies can defer taxes indefinitely on the many of the profits they say they have earned overseas until they "repatriate" that money back to the U.S. The administration seeks to sharply limit the tax deductions that companies taking advantage of deferral can take.

Still, the proposal is far less dramatic than what many companies had feared: a complete repeal of the deferral regime.

The proposal to be announced Monday also would clamp down on some other overseas tax-avoidance techniques that are widely used by U.S. multinationals.

The Obama administration wants to overhaul what it describes as a much-abused set of regulations known as the "check-the-box" rules. These give companies great latitude in deciding where exactly their subsidiaries should be taxed. Those rules have encouraged companies to take further advantage of low-tax haven countries with their offshore subsidiaries.

The administration also wants to toughen rules governing the tax credits that the U.S. grants companies to offset taxes they pay to foreign governments. That system has become the subject of elaborate gaming, U.S. tax officials say.

Overall, the deferral proposal would raise about $60.1 billion through 2019, according to the administration's estimates. Unlike a similar proposal in the House, it wouldn't affect research deductions, a likely victory for some industries such as pharmaceuticals. The reform of check-the-box rules would raise about $86.5 billion through the same period. The changes in foreign-tax-credit rules would raise about $43 billion. The changes to crack down on individual bank accounts would raise $9 billion.

The current U.S. rules for corporations carry enormous benefits for companies. Unlike most deferred taxes, those stemming from foreign earnings don't cut into a company's bottom line as long as they are considered "permanently reinvested" overseas.

The result can have a huge impact on a company's bottom line. The pharmaceutical and technology industries are particular beneficiaries.

from the Wall Street Journal, 2009-May-6, p.A13, by Elaine L. Chao:

Obama Tries to Stop Union Disclosure
No more sunshine on how worker dues are spent.

Fifty years ago, Congress passed the landmark Landrum-Griffin Act to protect rank-and-file union members from malfeasance by union leaders. Senate hearings had uncovered serious corruption and other unethical practices inside the labor movement, and a bipartisan coalition emerged to shine the light of disclosure on union practices.

Nevertheless, Democrats in Congress and in the executive branch have often attempted to undercut that law's financial reporting and disclosure requirements. Prior to reforms adopted in the George W. Bush administration, for example, one union could get away with reporting a $62 million expenditure as nothing more than "contributions, gifts, and grants to local affiliates" -- with no further explanation. Unfortunately, the Obama administration is already showing that it wants to return to this nontransparent standard of financial disclosure.

Within days of the inauguration, the new leadership at the Labor Department moved to delay implementing a regulation finalized in January that would have shed much needed light on how union managers compensate themselves with union dues. The regulation required disclosure of receipts for expenditures and for the purchase and sale of union assets -- disclosures that would help deter embezzlement. The administration has since moved even more aggressively, initiating proceedings to rescind this rule and others promulgated when I was secretary of labor.

The Labor Department's Office of Labor Management Standards (OLMS), created to enforce the 1959 law, also recently announced that it would not enforce compliance with the conflict-of-interest disclosure form (the "LM-30" form) that was revised in 2007. Labor's Web site states that "it would not be a good use of resources."

Instead, union managers will be able to file decades-old, less enlightening disclosure forms while the department considers whether to "revise" (i.e., gut) the current disclosure requirements. But what could be a better use of department resources than enforcing the laws under its jurisdiction?

From 2001-2008, the Labor Department secured more than 1,000 union fraud-related indictments and 929 convictions. This enforcement record was accomplished even though the enforcement office accounts for less than 0.1% of the department's budget. OLMS is the lone federal agency with the job of protecting worker interests in how their unions are managed. The last Congress increased President Bush's budget request for the Labor Department by $956 million even as it targeted OLMS for a budget cut.

This repeats the pattern we saw during the last Democratic administration. Under President Bill Clinton, staffing decreased more than 40%. The number of compliance audits dropped no less than 75% from fiscal year 1992 to fiscal year 2000. I would expect the current Congress to once again slash the OLMS budget, with the administration's blessing.

Union membership peaked in the 1950s, when more than one-third of American workers belonged to a union. Today, just 7.6% of American private-sector workers belong to a union. A Rasmussen Research survey conducted in March found that 81% of nonunion members do not want to belong to a union.

The response by union leaders and their Democratic allies to declining union membership is the Employee Free Choice Act. To increase unionization, it would deprive workers of private balloting in organizing elections, and it would substitute a signature-card process that would expose workers to coercion. The bill would also deny workers the right to ratify, or not ratify, labor contracts drafted by government arbitrators when negotiations in newly unionized workplaces exceed the bill's rigid timetable.

The Obama administration likes to say that it is "pro-worker." But something is amiss when its labor priorities are forcing unionization and labor contracts on American workplaces, and denying union members information on how their dues money is spent.

Ms. Chao was secretary of labor from 2001 to 2009 and is now a fellow at the Heritage Foundation.

from Reuters, 2009-May-5, by Kevin Krolicki with editing by Carol Bishopric and Bernard Orr:

UPDATE 2-GM details plans to wipe out current shareholders

*GM to issue up to 60 billion shares to swap for debt

*Current stockholders would get 1 pct of new company

*Plan would proceed with approval from U.S. Treasury (Adds detail from SEC filing, quote from GM CEO, byline)

DETROIT - General Motors Corp on Tuesday detailed plans to all but wipe out the holdings of remaining shareholders by issuing up to 60 billion new shares in a bid to pay off debt to the U.S. government, bondholders and the United Auto Workers union.

The unusual plan, which was detailed in a filing with U.S. securities regulators, would only need the approval of the U.S. Treasury to proceed since the U.S. government would be the majority shareholder of a new GM, the company said.

The flood of new stock issuance that could be unleashed has been widely expected by analysts who have long warned that GM's shares could be worthless whether the company restructures out of court or in bankruptcy.

The debt-for-equity exchanges detailed in the filing with the Securities and Exchange Commission would leave GM's stock investors with just 1 percent of the equity in a restructured automaker, ending a long run when the Dow component was seen as a bellwether for the strength of the broader U.S. economy.

GM shares closed on Tuesday at $1.85 on the New York Stock Exchange. The stock would be worth just over 1 cent if the first phase of GM's restructuring moves forward as described.

Once GM has issued new shares to pay off its debt to the U.S. government, bondholders and its major union, it said it would then undertake a 1-for-100 reverse stock split.

Such a move would take the nominal value of the stock back to near where it had been before the flood of new shares. But in the process, GM's existing shareholders would see their stake in the 100-year-old automaker all but wiped out.

The automaker said it expected to draw another $2.6 billion from the U.S. Treasury before a June 1 deadline set by the Obama administration for it to reach agreements with all of its key stakeholders.

That borrowing would take GM's debt to the U.S. government to $18 billion, and the automaker said it expected to have to borrow a total of nearly $27 billion.

GM has asked its three major creditor groups to write off at least $43 billion in debt in exchange for ownership of a restructured company.

By contrast, the current market value of GM's current 610 million shares is about $1.7 billion.

The stock has lost about 43 percent of its value since the start of the year.

GM bondholders, who are owed $27 billion, have also been offered new stock in exchange for writing off debt in a bond exchange the automaker launched last week.

The automaker is targeting a debt-reduction of at least $24 billion of its bond debt under the plan and has warned that it could be forced into bankruptcy if that cannot be achieved.

Representatives of GM bondholders, who would be given a 10-percent stake in the new company under the automaker's restructuring, have said they are being offered an unfairly low payout. They have asked instead for a majority stake in the restructured company.

But GM has asked the U.S. autos task force to accept a majority stake in a new GM in exchange for at least half of the government debt that the automaker has run up over the past four months.

Chief Executive Fritz Henderson said on Tuesday that the U.S. Treasury, which oversees the task force, was continuing to evaluate the company's restructuring plan and its progress.

"The Treasury will continue their evaluation through the month, which is fine. But we're not waiting, we're implementing. The bond exchange needed to be launched when we launched it," Henderson said. "Now we'll have to see."

In its filing, GM said it was in "ongoing discussions" with the U.S. Treasury on its proposal to swap government debt for equity in the largest U.S. automaker.

Finally, GM is negotiating with the UAW and is seeking to get the union to take GM stock in exchange for $10 billion owed to a trust fund for retiree healthcare.

Those talks were set to resume this week in Detroit, Henderson said.

GM said in its SEC filing that its three-pronged effort to slash debt could take its total authorized share issuance -- including new and existing shares -- to 62 billion shares.

from the Wall Street Journal, 2009-Apr-30, p.A14:

Gettelfinger Motors
The mauling of GM's bondholders reveals Treasury's political hand.

President Obama insisted at his press conference last night that he doesn't want to nationalize the auto industry (or the banks, or the mortgage market, or . . .). But if that's true, why has he proposed a restructuring plan for General Motors that leaves the government with a majority stake in the car maker?

The feds have decided they should own a neat 50% of GM, yet that is not the natural outcome of the $16.2 billion that the Treasury has so far lent to the company. Nor is the 40% ownership of GM that the plan awards to the United Auto Workers a natural result of the company's obligations to the union.

Yet Secretary Timothy Geithner and his auto task force, led by Steven Rattner, have somehow decided that Treasury and UAW chief Ron Gettelfinger will get to own a combined 90% of GM. If there's a reason other than the political symbiosis among the Obama Administration, Michigan Democrats and the auto union, it's hard to discern. From now on let's call it Gettelfinger Motors, or perhaps simply the Obama Motor Company, though in the latter they'd have to change the nameplates.

The biggest losers here are GM's bondholders. According the Treasury-GM debt-for-equity swap announced Monday, GM has $27.2 billion in unsecured bonds owned by the public. These are owned by mutual funds, pension funds, hedge funds and retail investors who bought them directly through their brokers. Under Monday's offer, they would exchange their $27.2 billion in bonds for 10% of the stock of the restructured GM. This could amount to less than five cents on the dollar.

The Treasury, which is owed $16.2 billion, would receive 50% of the stock and $8.1 billion in debt -- as much as 87 cents on the dollar. The union's retiree health-care benefit trust would receive half of the $20 billion it is owed in stock, giving it 40% ownership of GM, plus another $10 billion in cash over time. That's worth about 76 cents on the dollar, according to some estimates.

In a genuine Chapter 11 bankruptcy, these three groups of creditors would all be similarly situated -- because all three are, for the most part, unsecured creditors of GM. And yet according to the formula presented Monday, those with the largest claim -- the bondholders -- get the smallest piece of the restructured company by a huge margin.

This seems to be by political design. GM CEO Fritz Henderson says Treasury insisted that bondholders receive, at most, 10% of the company. "We went to the maximum and offered 10%," Mr. Henderson said. Mr. Rattner's office did not return our calls, so we can't say why Mr. Rattner wanted private risk capital cut out of the ownership of the new GM, but no one has contradicted Mr. Henderson.

Some Treasury officials have told the media that 50% government ownership is important to ensure that taxpayers get repaid for the $16.2 billion in Treasury loans. But this is false logic. Taxpayer-shareholders are likely to be far better off with a smaller stake in a truly private company that is better insulated from political meddling. Private owners are more likely than the Treasury or the unions to try to run the company for profit, and so increase its equity value over time. Treasury says it would be a hands-off owner, but that hardly seems plausible and in any case that would merely leave the UAW in control. At the next labor contract bargaining session, the union would sit on both sides of the table.

GM, the government and the bondholders all insist that a bankruptcy filing would be a disaster. GM's SEC filing on the debt-equity swap also warns darkly that if the requisite 90% of bondholders don't agree to these terms, they may recover little or nothing in bankruptcy court. But given the choice between a 10% stake in Gettelfinger Motors and the independent mercies of a bankruptcy judge, bondholders could be forgiven for taking their chances in court.

Certainly the bondholders deserve to take a haircut like everybody else. But squeezing them in such a blatant fashion has other consequences. Who would be crazy enough to lend GM money in the future? The Treasury also says it wants banks that do poorly in its "stress tests" to try to raise private capital before putting in more public money. The mauling of GM creditors tells investors not to invest in TARP banks because everything this Treasury touches turns to politics.

Monday's offer is so devoid of economic logic or fairness that it confirms the fears of those who said the original bailout would lead to a nationalized GM run for political ends. This fiasco will in part go down on George W. Bush's copybook, since he first decided GM was too big to fail.

But rather than use his early popularity to force hard decisions through the bankruptcy code, President Obama has decided in essence to have the feds run GM and Chrysler. This inevitably means running them for the benefit of the UAW that is so closely tied to the Democratic Party. Next up will be tax changes and regulations intended to coax, or coerce, Americans to buy Gettelfinger Motors cars. This tale of taxpayer woe is only beginning.

from the Wall Street Journal, 2009-May-6, by Holman W. Jenkins, Jr.:

Return of Le Car

"When you buy a car, I hope it will be a Democratic car."

Oops. We have misquoted the president. He said last week he hoped you would buy an "American car" -- though apparently not one built in a red state in a plant owned by Japanese or German investors. He meant a car built by a company headquartered in Detroit, even if the car itself is assembled in Mexico or Canada. How confusing.

Hundreds of shoppers certainly understood him to mean a Chrysler car. They rushed into dealerships last weekend. Never mind that Chrysler isn't technically making cars in the U.S. at the moment -- it shut down its factories -- and when it reopens it will be on a path to ownership by a company based in Turin, Italy.

A year ago, Fiat Chief Sergio Marchionne's big play in the U.S. was to begin reintroducing the Alfa Romeo brand. He fretted about where to get the $100 million to fund the marketing effort. Now, with a global auto depression descending, he gets $6 billion of American and Canadian taxpayer money to lean on.

Don't underestimate the appeal of that cushion for Fiat.

As for Chrysler -- well, you could call this merger made in Washington George Bush's baby as much as Barack Obama's.

Chrysler would be in deep yogurt in any case amid the market collapse, but its other problem is a decent franchise in Jeeps, muscle cars, minivans and pickups -- and nothing to meet Congress's stiff new "corporate average" fuel economy rules, and nobody to supply the billions to develop such vehicles and (inevitably) bribe customers to drive them off the lots.

Daimler, its previous parent, certainly had no desire to fund such profitless extravagance. The Germans took a lot of guff but they're the ones laughing now. They sold their majority stake in Chrysler just months after Democrats took over Congress, and just weeks after President Bush began blathering about "oil addiction" and echoing Democratic demands for stringent new fuel-mileage rules (after opposing them for years).

It's no exaggeration to say the rest of the story is told in Chrysler's bankruptcy filing. In search of a partner to underwrite development of fuel-sipping hybrids and electric cars that would be almost certain to lose money in the U.S. marketplace, Chrysler's Tom LaSorda spent two years seeking alliances with Nissan, GM, Volkswagen, Tata, Magna, GAZ, Hyundai, Honda, Toyota, Beijing Auto and others -- efforts that were "uniformly without success." Fiat, he said in an affidavit, was "Chrysler's last best hope."

Not since Renault teamed up with AMC to bring you Le Car has an odder pairing been seen -- or a less promising one.

Credulous media accounts insist the only challenge now is whether Chrysler can hang on for two years until Fiat begins churning out U.S. versions of its popular European models in U.S. factories. Goodness.

Unless gasoline prices go to $5 a gallon, Mr. Marchionne certainly is not so foolish to believe making and selling teensy eurocars in the U.S. is anybody's route to salvation.

Even in Europe, he has noted, a move to bigger, more powerful cars is underway. Motorists are getting fatter and older -- and unwilling to contort themselves to get in and out of a car.

He also understands that trying to beat Toyota at its own game is a nonstarter. Toyota sets a standard of quality and technology that all must meet -- that's the price of admission. But "what we have that Toyota does not have -- and I say this with all modesty -- is the great historical heritage of the brands."

Look at the Ford Mustang, VW Beetle, Dodge Charger, Chevy Camaro, BMW Mini -- for all the talk of the Toyota way, the real path to success for many lately has been making and selling evocative cars that mean something to consumers. Fiat's own Audrey Hepburnesque "Cinquecento" has been a hit for exactly this reason -- but in southern Europe not northern Europe, which ought to caution against any hope that the pixie car will sell particularly well in the U.S.

About one thing Mr. Marchionne has been unfailingly clear: He sees an auto Armageddon coming and believes survivors must produce at least 5.5 million units a year (Fiat produced just 2.2 million last year).

He's already turned his attention to Opel, GM's European arm, which is on the market. Notice, though, that he's committed no money to Chrysler, only a promise of vehicle technology. As a New York Times story recently trailed off, ". . . at some point, some [Obama auto] task force members acknowledge, the drive for profitability is likely to collide with Mr. Obama's fuel-efficiency and low-emission goals."

Yup. Mr. Marchionne has kept his skin out of the game for a reason. Don't expect him to reach for Fiat's modest checkbook until Team Obama can explain exactly how Chrysler is supposed to make money building the "green cars" Mr. Obama wants it to build. But you already know the answer: You, the taxpayer, have not finished chipping in to keep Fiat-Chrysler alive.

from the Wall Street Journal, 2009-Apr-29, by Holman W. Jenkins, Jr.:

The Truth About Cars and Trucks

Call it a bailout or restructuring. What you're seeing is not a new beginning for the homegrown auto sector. It's the culmination of a decades-old, dishonestly peddled auto policy.

The two parties that turned the Big Three into a perennially limping freak of unwritten industrial policy now will take formal ownership of their handiwork. The United Auto Workers (UAW) would own 39% of GM. The federal government would own 50%. The creditors will be shafted with just 10%. (In the Chrysler plan being discussed, labor would own 55%, making it effectively a subsidiary of the UAW.)

The day after any such settlement is finalized, the clock will start ticking down to the next collective-bargaining session between a monopoly UAW and what remains of the Big Three -- though now the UAW would be sitting on both sides of the table.

Nearly 25 years ago, a Los Angeles Times reporter innocently and accurately invoked the "M" word in describing the domestic auto sector, noting that the arrival of Japanese auto plants was "threatening the UAW's traditional monopoly on labor in the domestic auto industry."

The erosion of the Big Three's market share since then has really been the erosion of the market for monopoly labor-produced cars. The UAW standard tactic, "pattern bargaining," which it pursues without embarrassment, would have gotten Bill Gates thrown in jail under the antitrust laws.

When the L.A. Times wrote, the labor cost differential versus a Japanese plant was about $2,000 per car. Twenty years later, the cost difference was about $2,000 per car. Today's lament is, "The bankers have benefited from a bailout, so why shouldn't auto workers?" But they have, they have -- for decades. For the business model described above could not possibly have survived otherwise.

Chrysler was bailed out directly with government loan guarantees; the Big Three all benefited from Reagan era "voluntary" quotas on Japanese imports to prop up domestic car prices. But these were temporary fixes. For more than 40 years, a 25% tariff has kept out foreign-built pickup trucks even as a studied loophole was created in fuel-economy regulations to let the Big Three develop a lucrative, protected niche in the "passenger truck" business.

This became the long-running unwritten deal. This was Washington's real auto policy.

For three decades, the Big Three were able to survive precisely because they skimped on quality and features in the money-losing sedans they were required under Congress's fuel economy rules to build in high-cost UAW factories. In return, Washington compensated them with the hothouse, politically protected opportunity to profit from pickups and SUVs.

Doesn't sound much like what you hear incessantly from your Congressman, about how Detroit's problems are all due to management "incompetence" in deciding to build "gas guzzling" SUVs, does it?

But then uncertain at this point is whether any legislator (other than John Dingell) remembers or grasps anymore Congress's own role. Yet the muddled, covert bailout continues: Washington's latest fuel-economy rules actually reward manufacturers for increasing the size and weight of some vehicles. The truck tariff remains in place. The fuel-mileage rules continue to protect the UAW monopoly by discouraging the Big Three from shipping small-car production offshore.

Lately some have doted, with wonderment and admiration, on the Obama administration's apparent willingness to drive a hard bargain with the UAW as it tries to impose a stage-managed replica of bankruptcy on GM and Chrysler. Please.

In a real bankruptcy, which is the natural fate of companies unable to meet their obligations, Chrysler and GM would be run (or liquidated) for the benefit of their creditors, not their workers. But, here, "pattern bargaining" will remain the law of the Detroit jungle. The UAW will continue to use its unnaturally augmented clout to extract uncompetitive pay and benefits (it can do no other given its internal incentives). As it has for 40 years, Washington will pitch in with one improvisation after another, disguised as energy policy, trade policy, health-care policy or environmental policy, to stop the rivets from popping off. Politics, especially Democratic electoral politics, will play a more dominant role than ever.

Look closely and the hidden subsidies to keep the dismal beast alive have already started flowing -- tax credits for UAW retirees to make up for reduced health-care benefits, loans to help Detroit "invest in green cars." And plenty more will be needed to sustain Obama Motors on life support, at least through the 2012 election.

The Obama strategy does nothing to change the basic dynamics of the homegrown auto sector -- a labor monopoly combined with endless finagles in Washington to help the Big Three survive competition from Japanese, German and Korean auto makers. But maybe the shock of seeing GM nationalized will at least cause some in politics and the press finally to think about how we got here.

from the Wall Street Journal, 2009-Apr-22, by Holman W. Jenkins, Jr.:

GM Is Becoming a Royal Debacle

It's good to be the king -- until you start tripping over your own robe.

So King Barack the Mild is finding as he tries to dictate the terms of what amounts to an out-of-court bankruptcy for Chrysler and GM. He wants Chrysler's secured lenders to give up their right to nearly full recovery in a bankruptcy in return for 15 cents on the dollar. They'd be crazy to do so, of course, except that these banks also happen to be beholden to the administration for TARP money.

Wasn't TARP supposed to be about restoring a healthy banking system? Isn't that a tad inconsistent with banks just voluntarily relinquishing valuable claims on borrowers? Don't ask.

Kingly prerogative also conflicts with kingly prerogative in the case of GM's unsecured creditors, who are the sticking point in agreeing to a turnaround plan by the drop-dead date of June 1. His retainer, Steven Rattner, has delivered word that the king's pleasure is that these unsecured creditors give up 100% of their claims in return for GM stock.

It may also be the king's pleasure, he advised, to convert at some point the government's own $13 billion in bailout loans into GM stock.

There's just one problem: Why on earth would GM's creditors -- who include not just bondholders but the UAW's health-care trust -- want any part of this deal?

They've already seen that the rights and privileges of shareholders are not worth diddly when the king is throwing his prerogatives around. He dispensed with the services of GM chief Rick Wagoner, though the king owned not a single share of GM stock at the time. His minions communicated the king's pleasure that GM consider discontinuing its GMC brand, maker of pickups and SUVs that offendeth the royal eye -- though these vehicles earn GM's fattest profit margins.

His minions haven't asked GM to give up the Chevy Volt, even after determining it will be a profitless black hole, because of the king's fondness for green.

No wonder the king's mediation of 40 years of stalemated labor and business issues in the auto sector isn't going so well. There's a reason royal discretion has long been outmoded as a way to run an economy: Things just work better if a realm's subjects are left to resolve their own disputes and interests through the impersonal mechanism of the markets and the law.

His current bailout strategy amounts to asking thousands of bondholders and GM retirees to buy stock in a GM that the king's own policies mean they'd be loony to buy. Add the fact that passenger cars and trucks in the U.S. are a trivial source of greenhouse gases in any case -- they could all become carbonless and it would be irrelevant in the face of China's and India's coal use. King Barack has only been on his throne for three months. His policies already have devolved into savage incoherence.

But let's face it, the king is also somewhat lacking in the lion-heartedness department.

He's on record saying that the only sensible way to reduce fossil-fuel dependence is to put a price on it, as with cap and trade. Then why not have the courage of his convictions and do away with the proven ineffectualness and perversity of trying to regulate automotive fuel mileage directly?

He could release GM, Chrysler and Ford to make those cars, and only those cars, consumers would reward with profits (including fuel-efficient cars they might suddenly find desirable if Mr. Obama moves ahead with plans to tax carbon emissions).

He wouldn't be foolishly trying to rewrite GM's labor contracts and splitting negotiating hairs with its lenders. GM -- along with Chrysler and Ford -- might not avoid a trip through the bankruptcy courts. But either way, they'd be better able to meet their obligations to creditors, including UAW retirees, if allowed to focus on making cars the public actually wants to buy.

King Barack could take a leaf from St. Jimmy the Simple, who faced a collapse of the railroad industry. He signed the Staggers deregulation law, returning power to the industry itself to decide what services to provide and which customers to chase. What had previously been an industrial basket case, halfway nationalized already, fixed itself almost overnight.

He might consult with the Sage of Omaha, who has become a fan of the rail business. What would make Sir Warren similarly enthused about investing in GM? The answer, we're guessing, is not more cars like the Chevy Volt. The banks get all the attention, but they have the power to earn their way out of trouble. Not GM, the way things are going. St. Warren could do the king a real service by warning him off a path with Detroit that could end up blighting all the years of his reign.

from Bloomberg, 2009-Apr-28, by John Lippert and Mike Ramsey:

UAW Said to Get 55% Chrysler Ownership, Board Seats (Update1)

Chicago -- The United Auto Workers union's retiree health-care fund will own 55 percent of Chrysler LLC in exchange for cutting in half the automaker's $10.6 billion cash obligation to the trust, people familiar with the matter said.

Under the terms of the contract, the trust would get representation on the company's board of directors, said two people briefed on the deal, who asked not to be named because the matter is private.

The tentative agreement was approved unanimously by UAW leaders yesterday and will be sent to union locals for ratification, one of the people said. Chrysler, operating with $4 billion in U.S. loans, faces an April 30 deadline to restructure its costs or risk losing government support.

“With employees effectively sharing the risks, this could play to the advantage of the ailing company,” said Howard Wheeldon, a senior strategist at BGC Partners LP in London. The UAW role, if confirmed, may be the only “feasible way of moving forward,” he added.

The U.S. Treasury, which still is negotiating on Chrysler's behalf with the company's secured lenders, has little room to give the banks more equity. Fiat SpA would get 20 percent of the company to start, with the ability to increase ownership to 35 percent by hitting performance goals. The Treasury would keep 10 percent.

Shawn Morgan, a spokeswoman for Auburn Hills, Michigan- based Chrysler, declined to comment on the tentative agreement “as it still needs to be ratified,” she said in an e-mail.

`Weak' Chrysler Products

The Fiat connection may not be the best approach for saving Chrysler, though employee ownership through the union may help, BGC's Wheeldon said.

“The weakness remains Chrysler's product base and how quickly this can be adapted with or without Fiat's `help,'” the analyst said.

Instead of contributing $8.8 billion to a retiree health- care trust, Chrysler will give the union trust shares of the company and a promissory note for $4.59 billion that will be paid in installments with 9 percent interest until 2023, one of the people said. This reduces the up-front cash Chrysler would have had to pay under its 2007 contract agreement with the Detroit-based union.

The union's equity in Chrysler is valued at $4.2 billion. If it can sell the shares for more, the Treasury would get the difference, one of the people said.

Workers also agreed to changes in work classifications, including the number of types of skilled trades. The contract also has a provision that all new hires for the company in the factories will make $14 to $16 an hour, up to 25 percent of the total Chrysler-UAW workforce. This increased from 20 percent in an earlier contract.

Separately yesterday, General Motors Corp. said it will be at least half owned by the U.S. government under a plan to slash its debt and cut dealer ranks nearly in half.

from Reuters, 2009-Apr-30, by Nick Carey with additional reporting by David Bailey and editing by Martin Howell and Richard Chang:

Chrysler reaches new low after a very rough ride

DETROIT - Once an icon of American automotive might, Chrysler has reached a new low in its rocky eight-decade history by filing for bankruptcy and cutting its business to a shadow of its former size.

"Chrysler has flirted with bankruptcy on and off since 1954," said automotive historian Bob Elton. "It's been a wild ride between very prosperous periods and serious disasters."

"They have finally qualified as a real failure," he added.

Weighed down by a cost structure that made it uncompetitive against Asian rivals, two years of crumbling auto sales and the credit crisis, Chrysler filed for Chapter 11 bankruptcy protection on Thursday and announced an alliance with Italian automaker Fiat SpA after debt restructuring talks broke down.

That alliance raises a key question: can Chrysler rise Phoenix-like from the ashes when it emerges on the other side of bankruptcy and resurrect a brand once synonymous with American craftsmanship? Or is it too late?

Few industry experts seem to rate the company's chances of longer-term survival highly.

"Chrysler is a company that has been failing for the last 35 years," said University of Michigan Professor Gerald Meyers, a former chairman of American Motors Corp which was acquired by Chrysler in 1987. "There is no economic justification for the existence of the Chrysler Corporation."

Chrysler saw its U.S. market share shrink to 11 percent in 2008 from 13.3 percent in 2002, according to industry tracking firm Edmunds.com. Since February 2007 the firm has announced 22,000 factory job cuts. It now has around 26,800 unionized workers.

The marriage with Fiat also raises the ghost of the Italian automaker's own poor track record in the United States and what that portends for its chances of helping Chrysler to win over American consumers.

CHECKERED HISTORY

Walter P. Chrysler, a onetime vice president of General Motors Corp, formed Chrysler Corp in 1925 out of an amalgamation of other automakers whose origins stretched back to the beginning of the 20th century.

Chrysler quickly became a major power on the U.S. automotive scene, purchasing car and truck maker Dodge Brothers in 1928. It was after that acquisition that the term "The Big Three," was first coined in an editorial in The Automotive Daily News because GM, Ford Motor Co and Chrysler controlled 75 percent of U.S. auto sales between them.

Chrysler survived the Great Depression with well-made, low-cost cars. Its Plymouth, DeSoto and Dodge brands became household names symbolizing American engineering prowess.

"People forget that in the 1920s and 1930s Chrysler was regarded as an engineering powerhouse," said automotive historian Bill Vance.

Like the other automakers, Chrysler turned to military production during World War Two -- Detroit was dubbed the "Arsenal of Democracy" -- cementing its iconic status. Chrysler's Jeep was originally a military vehicle.

But from the late 1940s to the present day, Chrysler has swung between boom and bust.

Historian Elton counts seven near collapses for the company since 1954, punctuated by soaring successes including Chrysler's turnaround under Lee Iacocca in the 1980s -- making Iacocca one of America's first celebrity executives, who was even touted at one stage as a potential presidential candidate.

"Chrysler has always tried anything and everything at once," Elton said. "They shoot for the stars. When they get it right they hit the big time. When they miss, it's ugly."

But an unsuccessful union with Daimler AG -- which bought Chrysler in 1998 and lost billions on the deal -- ended with a sale to private equity group Cerberus Capital Management LP CBS.UL in 2007, which led to the latest and biggest failure.

FIX IT AGAIN, SERGIO

U.S. President Barack Obama summed up the irony of Chrysler's position on Thursday when he said the automaker has been a "pillar of our industrial economy, but, frankly, a pillar that's been weakened by papering over tough problems and avoiding hard choices."

The marriage with Fiat is intended to revive Chrysler's fortunes, bringing the Italian car maker's small-car expertise to boost the American company's truck-heavy lineup.

Fiat is due to eventually own 35 percent of Chrysler under the restructuring plan.

Edmunds.com CEO Jeremy Anwyl said an alliance with Fiat could potentially be more fruitful than Chrysler's clash of cultures with Daimler -- and could be successful like the alliance between Renault and Nissan has been under CEO Carlos Ghosn.

"This is a very different situation," Anwyl said. "It's clear from the get-go that Fiat is in charge and that this will be a much leaner, more efficient company."

But most observers say Fiat's arrival comes too late to save Chrysler after years of lackluster models that haven't appealed enough to the American consumer.

"Fiat can keep a piece of it alive longer, and then if Fiat is very successful maybe they can get some more traction," Meyers said. "But Chrysler as we know it is a dead duck."

Others refer to Fiat's awful track record in the United States in the 1970s and 1980s, which led to an ignominious retreat from the market. Fiat's cars became the butt of jokes, including that Fiat stood for "Fix It Again Tony."

Whether its cars are good or bad, that is the rap that Fiat must overcome, historian Vance said.

"It's hard to win back customers when you've lost them. It takes years," he said. "Still, I'd like them to do well."

"It would be tragic to see a once-respected icon like Chrysler go down," he added.

from Dave Cribbin's blog, 2009-Apr-29, by Dave Cribbin:

White House Gives the Go Ahead to Waterboard Bondholders

If water -boarding of terrorists is torture and as a result criminal , why is it that the financial equivalent of water-boarding is now routinely practiced not by the CIA on terrorists, but by the White House, Treasury and The Fed on bondholders, investors and CEO's.

Water-boarding was part of the enhanced interrogation techniques the CIA used to extract information from enemies of the United States. Enhanced interrogation techniques are performed outside of the normal interrogation process that is used on enemy combatants. When the government chose to restructure the failing automakers outside of the normal process (a bankruptcy proceeding is the normal process when you are insolvent) they did so for a reason, and yesterday that reason became crystal clear.

Keeping the Automakers out of bankruptcy, and thereby removing the necessity that the restructuring move forward based on "The Rule of Law", was paramount if the Unions were to have any hope of securing the payment of their unsecured VEBA health care trust claim. A big win for the Politically savvy and well connected UAW, but a terrible loss for the bondholders and taxpayers who will foot the bill.

Only in the political arena could two unsecured creditors receive vastly different treatment, as have the Bondholders and the Unions. The UAW, whose unsecured VEBA is owed $10 Billion by GM, will receive 39% of the GM stock; the Bondholders, who are owed $28 Billion, will receive 10% of GM stock . Do the math: the Union has received 10 times what the government expects the bondholders to take in this restructuring.

In the Chrysler deal, the Union fared even better, as they were unsecured creditors and the Chrysler bondholders were secured creditors. The bondholders received 28% of the value of their $6.9 billion in bonds in cash; the Union will receive stock worth approximately $4.2 billion, and a note for an additional $4.58 billion, which represents 82% of the value of their claim. Either the government negotiators have dyslexia and have made a terrible mistake in their paperwork, or this is political payoff WRIT LARGE. Is this not the equivalent of financial waterboarding?

And thus we enter a brazen new era of government, when the White House is openly complicit in the theft of, as a matter of fact is directing, the looting of private property from investors. Welcome to the Rule of Man, or as the President calls it, change we can believe in! Where campaign contributions mean everything and the rule of law, not so much.

Exactly what did he mean when the President of the United States said;
"Let me be clear. The United States government has no interest in running GM. We have no intention of running GM." Apparently he meant it's not an interesting job, but we are going to do it anyway!

from the Washington Post, 2009-Apr-24, by Peter Whoriskey:

Auto Retirees Brace for Hardship
Pension and Health Benefits May Suffer Under Bankruptcy

As the Obama administration prepares to send Chrysler into bankruptcy court, with General Motors possibly to follow, one of the biggest losers may be the automakers' current and future retirees, a group of nearly 1 million people who could see their pensions and health-care funds slashed by tens of billions of dollars.

The loss could pose political trouble for the Obama administration, which has pressed both automakers since February to ready themselves for bankruptcy as a means of purging their overwhelming debts.

The GM and Chrysler pension plans together cover 928,000 people, and many of them worry that the industry restructuring already underway could slice their benefits.

A group of nonunion retirees is scheduled to meet with the administration's auto task force this morning to try to save their pensions and health benefits. The United Auto Workers is also negotiating over changes to the benefits, but has yet to reach an agreement with the Treasury Department, a source familiar with the matter said.

"We are going to do what we can to help protect their benefits to the degree that we can," said an administration official, who spoke on condition of anonymity because the discussions are private. "It's premature to speculate on what will happen. This is certainly a constituency that we are focused on, but we have not and cannot rule anything out."

With Chrysler facing an end-of-month federal deadline to reach agreements with its bankers and the union, stakeholders have been trading a flurry of offers and counteroffers.

In recent weeks, members of the task force have struggled to devise rescue plans and a legal strategy that might protect those workers if the companies file for bankruptcy. But experts say an outcome is difficult to predict.

"I feel betrayed," said Vicki Prout, 57, a former executive assistant at Chrysler whose 23-year career there included typing speeches for Lee Iacocca when he was chief executive. "They offered these incentives for us to take early retirement, and I took one. Now it looks like my fixed income wasn't so fixed."

She estimated that her monthly payment would be cut in half if the pension is terminated in a bankruptcy. She has started looking for jobs around her home in Troy, Mich., but said there are not many to find.

"I feel like I've been caught in a storm," she said.

If the GM pension plans are terminated, they would be at least $20 billion underfunded, according to the government's Pension Benefit Guaranty Corp. The federal agency would insure about $4 billion of that gap, leaving the GM pension plans with $100 billion in obligations and only $84 billion in assets.

Likewise, if the Chrysler pension plans are terminated, they would be at least $9 billion underfunded, according to the agency, which would insure about $2 billion of that. This would leave the Chrysler pension plans with $28 billion in obligations and only $20 billion of assets, according to the pension agency.

Those shortfalls in the pension plans would be felt most keenly by the companies' younger retirees, like Prout, many of whom were enticed to take buyouts and now worry that the terms of their buyout deal could be subject to revision.

The end of the pensions would also be a burden to the federal pension agency, which would be charged with administering the programs, according to a Government Accountability Office report released yesterday.

Taking over Chrysler's and GM's pension plans "would likely strain PBGC's resources," the report said, noting that could pressure the federal government into giving the pension agency financial assistance.

In addition to cuts in their pensions, the retirees also face potential reductions in their health benefits. GM owes $20 billion to its union retiree health fund, and Chrysler owes $10 billion to its fund.

In a bankruptcy, at least a portion of those company debts could be extinguished, leaving the retiree health funds with significant shortfalls.

Despite that possibility, members of the auto task force believe that bankruptcy could be the only way to strip the companies of the debt that is weighing them down.

As President Obama moved to aid the auto industry earlier this year, his auto task force ordered GM and Chrysler to reduce the level of their debts and expenses owed to banks, bondholders, retirees and workers.

The companies' first preference is to reduce their debt load by negotiating with all parties. Bankruptcy proceedings, they note, can be difficult to predict and the prospect could stain the brand.

But if the necessary concessions cannot be negotiated, the Obama administration wants the companies to consider a bankruptcy filing, and each company is preparing to do so.

One of the advantages of bankruptcy is that the court proceeding can compel the automakers' creditors -- mainly large banks and other financial firms -- to cut what the automakers owe them by billions of dollars, according to people familiar with the task force's thinking.

In recent weeks, members of the task force have had briefings with the federal pension agency to ask how workers would be treated if the pension benefit is terminated. They've also contacted Daimler, Chrysler's former owner. When Daimler sold Chrysler to the private-equity firm Cerberus in 2007, it agreed to contribute $1 billion to the PBGC if the agency ever had to take over Chrysler's pensions. Daimler might now have to live up to that agreement.

"We spent our whole lives trying to build the company," said Chris Dyrda, 61, a retired engineering manager at Chrysler. "We never thought that in our old age someone else might be playing roulette with our pensions."

from BusinessWeek.com, 2009-Apr-24, by David Kiley:

Pontiac: R.I.P.

General Motors is expected to announce Monday that it plans to kill its Pontiac brand, rather than maintain it as a niche brand with one or two models into the future as had been previously announced by company officials.

The move comes as GM is being forced to make a lot of hard decisions to restructure itself. The automaker has until May 31 to demonstrate to the White House that it has a viable comeback plan that will justify further tax-payer loans.

Most Pontiac showrooms have been combined with GM's GMC and Buick brands. But there are about 40 stand-alone Pontiac stores.

The company killed the Oldsmobile brand in 2000. It currently is in process of closing off its Saab brand, waiting to see if investors want to buy it and keep it going. It is also trying to sell its Hummer and Saturn brands. In Europe, it is in negotiations to possibly sell its Opel and Vauxhall brands.

Pontiac has been almost a lost brand at GM. It once was positioned as the company's performance brand. “We Build Excitement” was a long-standing ad slogan. It's twin-kidney grille design was taken from BMW's. The high-water mark for Pontiac's brand clarity, most agree, was the 1964 Pontiac GTO, which many point to as the start of the muscle car era.

In the 1970s and 80s Pontiac offered the Firebird as a legitimate street rod. But GM got lazy, and began dumping “badge engineered” cars into the showrooms. That meant, for example, Pontiac Grand Ams, Grand Prixes and Sunfires were nothing more than Pontiac-badged versions of the cars that could also be bought at Chevy, Buick and Olds dealerships.

I bought a 1993 Pontiac Grand Prix for myself. It had a flabby ride, and I particularly recall the piece of foam hanging out of the slot in the door where the door opener was situated. Even with the foam stuffed into the whole, the wind whipped through it at me when I was driving at highway speeds.

The drifting identity of Pontiac may have hit its nadir when the automaker gave dealers a minivan, called the Montana, as well as a gawky SUV called the Aztek in 2000. The Aztek has become the poster-car for awful design at GM in the last 20 years.

Hope for Pontiac sprung when Bob Lutz arrived on the scene to take over product development at GM in 2001. He immediately got to work adapting an Australian car GM already built as a new GTO. But it failed to catch on. The first car designed from the ground up under his direction was the Solstice roadster convertible. It has been reviewed well by the auto press, but sold in small numbers due, in part, to the weakness of the Pontiac brand.

A few years ago, GM executives heard advertising pitches on how to reposition Pontiac. One seemingly good idea was to embrace the gritty Detroit roots of Pontiac, and pitch it as a urban Motown muscle and performance brand. GM officials liked the idea, pitched by ad agency Deutsch, which now handles the Saturn account. But those officials realized they didn't have the product lineup to back up the compelling ad idea. It never got off the ground.

Pontiac sold about 42,000 vehicles through the first three months of the year, down 44% from the year before, a bit deeper decline than the industry as a whole. That low sales volume is spread across seven active Pontiac models: G3, G5, G6, G8, Vibe, Solstice and Torrent. Lots of Pontiacs show up at car rental lots, though, which means a big chunk of sales aren't profitable.

There is finally widespread agreement, albeit forced on GM management by the Recession and the White House auto industry task force, that it is madness to maintain so many brands that have so little market share.

GM, through March, had an 18.8% share of the U.S. auto market. But 11.2% of that is Chevy. Saab, Pontiac, Hummer, Saturn—the brands on the auction block or headed for the graveyard--add up to 3% of the market. And a good bit of that has been rental fleet.

GM's pressurized restructuring is not only about manufacturing costs and headcount reduction. It is about opportunity cost. If the company is worried about supplying all these weak brands with new models and ad budgets, it is shorting the real brands that make money and have futures, like Chevy and Cadillac, of the focus and resources those brands need.

So long Pontiac. Say hello to Olds when you get where you are going.

from the Wall Street Journal, 2009-Apr-18, by Max Schulz:

The Ethanol Bubble Pops in Iowa
More evidence the fuel makes little economic sense.

Dyersville, Iowa

In September, ethanol giant VeraSun Energy opened a refinery on the outskirts of this eastern Iowa community. Among the largest biofuels facilities in the country, the Dyersville plant could process 39 million bushels of corn and produce 110 million gallons of ethanol annually. VeraSun boasted the plant could run 24 hours a day, seven days a week to meet the demand for home-grown energy.

But the only thing happening 24-7 at the Dyersville plant these days is nothing at all. Its doors are shut and corn deliveries are turned away. Touring the facility recently, I saw dozens of rail cars sitting idle. They've been there through the long, bleak winter. Two months after Dyersville opened, VeraSun filed for bankruptcy, closing many of its 14 plants and laying off hundreds of employees. VeraSun lost $476 million in the third quarter last year.

A town of 4,000, Dyersville is best known as the location of the 1989 film "Field of Dreams." In the film, a voice urges Kevin Costner to create a baseball diamond in a cornfield and the ghosts of baseball past emerge from the ether to play ball. Audiences suspended disbelief as they were charmed by a story that blurred the lines between fantasy and reality.

That's pretty much the story of ethanol. Consumers were asked to suspend disbelief as policy makers blurred the lines between economic reality and a business model built on fantasies of a better environment and energy independence through ethanol. Notwithstanding federal subsidies and mandates that force-feed the biofuel to the driving public, ethanol is proving to be a bust.

In the fourth quarter of 2008, Aventine Renewable Energy, a large ethanol producer, lost $37 million despite selling a company record 278 million gallons of the biofuel. Last week it filed for bankruptcy. California's Pacific Ethanol lost $146 million last year and has defaulted on $250 million in loans. It recently told regulators that it will likely run out of cash by April 30.

How could this be? The federal government gives ethanol producers a generous 51-cent-a-gallon tax credit and mandates that a massive amount of their fuel be blended into the nation's gasoline supplies. And those mandates increase every year. This year the mandate is 11 billion gallons and is on its way to 36 billion gallons in 2022.

To meet this political demand, VeraSun, Pacific Ethanol, Aventine Renewable Energy and others rushed to build ethanol mills. The industry produced just four billion gallons of ethanol in 2005, so it had to add a lot of capacity in a short period of time.

Three years ago, ethanol producers made $2.30 per gallon. But with the global economic slowdown, along with a glut of ethanol on the market, by the end of 2008 ethanol producers were making a mere 25 cents per gallon. That drop forced Dyersville and other facilities to be shuttered. The industry cut more than 20% of its capacity in a few months last year.

What's more, as ethanol producers sucked in a vast amount of corn, prices of milk, eggs and other foods soared. The price of corn shot up, as did the price of products from animals -- chickens and cows -- that eat feed corn.

Texas Gov. Rick Perry reacted by standing with the cattlemen in his state to ask the Environmental Protection Agency last year to suspend part of the ethanol mandates (which it has the power to do under the 2007 energy bill). The EPA turned him down flat. The Consumer Price Index later revealed that retail food prices in 2008 were up 10% over 2006. In Mexico, rising prices led to riots over the cost of tortillas in 2007. The United Nations Food and Agricultural Organization and other international organizations issued reports last year criticizing biofuels for a spike in food prices.

Ethanol is also bad for the environment. Science magazine published an article last year by Timothy Searchinger of Princeton University, among others, that concluded that biofuels cause deforestation, which speeds climate change. The National Oceanographic and Atmospheric Administration noted in July 2007 that the ethanol boom rapidly increased the amount of fertilizer polluting the Mississippi River. And this week, University of Minnesota researchers Yi-Wen Chiu, Sangwon Suh and Brian Walseth released a study showing that in California -- a state with a water shortage -- it can take more than 1,000 gallons of water to make one gallon of ethanol. They warned that "energy security is being secured at the expense of water security."

For all the pain ethanol has caused, it displaced a mere 3% of our oil usage last year. Even if we plowed under all other crops and dedicated the country's 300 million acres of cropland to ethanol, James Jordan and James Powell of the Polytechnic University of New York estimate we would displace just 15% of our oil demand with biofuels.

But President Barack Obama, an ethanol fan, is leaving current policy in place and has set $6 billion aside in his stimulus package for federal loan guarantees for companies developing innovative energy technologies, including biofuels. It's part of his push to create "green jobs." Archer Daniels Midland and oil refiner Valero are already scavenging the husks of shuttered ethanol plants, looking for facilities on the cheap. One such facility may be the plant in Dyersville, which is for sale. Before we're through, we'll likely see another ethanol bubble.

Mr. Schulz is a senior fellow at the Manhattan Institute.

from the New York Times, 2009-Apt-17, by John M. Broder:

E.P.A. Clears the Way for Regulation of Warming Gases

WASHINGTON — The Environmental Protection Agency on Friday formally declared carbon dioxide and five other heat-trapping gases to be pollutants that threaten public health and welfare, setting in motion a process that for the first time in the United States will regulate the gases blamed for global warming.

The E.P.A. said the science supporting its so-called endangerment finding was “compelling and overwhelming.” The ruling triggers a 60-day comment period before any proposed regulations governing emissions of greenhouse gases are published.

Lisa P. Jackson, the E.P.A. administrator, said: “This finding confirms that greenhouse gas pollution is a serious problem now and for future generations. Fortunately, it follows President Obama's call for a low-carbon economy and strong leadership in Congress on clean energy and climate legislation.”

She said that combatting the emissions that create greenhouse gases would help create millions of new jobs and lessen the nation's dependence on foreign oil by fostering a more fuel-efficient transportation industry.

As the E.P.A. begins the process of regulating these climate-altering substances under the Clean Air Act, Congress is engaged in writing wide-ranging energy and climate change legislation that could pre-empt any action taken by the agency. President Obama and Ms. Jackson have repeatedly said that they much prefer that Congress address global warming rather than have the E.P.A tackle it through administrative action.

The United States has come under fierce international criticism for trailing other industrialized nations in moving to regulate carbon dioxide and other global warming pollutants. With this move, and the parallel action by Congress toward a cap-and-trade system for greenhouse gases, the American government can now point to concrete progress as nations begin to write a new international climate change treaty.

However, the E.P.A.'s announcement on Friday did not include any specific targets for reducing greenhouse gases or new requirements for energy efficiency in vehicles, power plants or industry. Those would emerge after a period of comment and rule-making or in any legislation approved by Congress.

Two years ago this month, the Supreme Court, in Massachusetts v. E.P.A., ordered the agency to determine whether greenhouse gases harm the environment and public health and, if not, to explain why. Agency scientists were virtually unanimous in determining that they do, but top officials of the George W. Bush administration suppressed the finding and took no action.

In his first days in office, Mr. Obama promised to review the case and act quickly if the finding were justified. Friday's announcement is the fruit of that review. The E.P.A. action was approved after two weeks of scrutiny by the White House Office of Management and Budget's regulatory affairs arm.

According to the E.P.A. announcement, the proposed finding was based on rigorous scientific analysis of six gases — carbon dioxide, methane, nitrous oxide, hydrofluorocarbons, perfluorocarbons and sulfur hexafluoride — that have been widely studied by scientists around the world. Their studies showed that concentrations of these gases are at unprecedented levels as a result of human activity, the agency said, and these high levels are very likely responsible for the increase in average temperatures and other changes in the earth's climate.

Among the ill effects of rising atmospheric concentrations of carbon dioxide and the other gases, the agency found, were increased drought, more heavy downpours and flooding, more frequent and intense heat waves and wildfires, a steeper rise in sea levels, more intense storms and harm to water resources, agriculture, wildlife and ecosystems.

Environmental advocates applauded a decision that they had sought for years.

“At long last, the E.P.A. has officially recognized that carbon pollution is harmful to our health and to the climate,” said David Doniger, director of the climate center at the Natural Resources Defense Council and one of the lawyers in the Supreme Court case. “The heat-trapping pollution from our cars and power plants leads to killer heat waves, stronger hurricanes, higher smog levels, and many other direct and indirect threats to human health.”

“With this step,” he added, “Administrator Lisa Jackson and the Obama administration have gone a long way to restore respect for both science and law. The era of defying science and the Supreme Court has ended.”

Auto companies, utilities and other emitters have long dreaded this day but reacted with caution because the regulatory process has just begun and they hope to address their concerns in the legislation now before the House Energy and Commerce Committee.

Roger Martella, general counsel at E.P.A. during the Bush administration, said the finding marks the official start of an era of controlling carbon emissions in the United States.

“The proposal, once finalized, will give E.P.A. far more responsibility than addressing climate change,” Mr. Martella said. “It effectively will assign E.P.A. broad authority over the use and control of energy, in turn authorizing it to regulate virtually every sector of the economy.”

The E.P.A. said that it was not immediately proposing any new rules and reiterated the administration's stance that a legislative solution is far preferable.

“Today's proposed finding does not include any proposed regulations,” the agency statement said. “Before taking any steps to reduce greenhouse gases under the Clean Air Act, E.P.A. would conduct an appropriate process and consider stakeholder input.

“Notwithstanding this required regulatory process, both President Obama and Administrator Jackson have repeatedly indicated their preference for comprehensive legislation to address this issue and create the framework for a clean energy economy.”

from the Wall Street Journal Europe, 2009-Apr-16:

Green Joblessness
Spain shows the follow of eco-employment policies.

To little fanfare this month, BP closed a solar-cell factory in Madrid, laying off 480 workers. But wait, aren't "green-collar" jobs the wave of the future -- the kind of employment that will only grow and "can't be outsourced," as President Obama likes to say?

Spain happens to be the country that the President often cites as his role model for the Green Jobs Revolution. It's also the source of an important new study that explains how expensive these jobs are -- and why Spain's renewable-energy business is a bubble waiting to burst. The study, released last month by researchers at Universidad Rey Juan Carlos, uses data from the Spanish government and European Union to demonstrate that each job created in Spain's renewables industry costs as much as 2.2 jobs elsewhere in the economy.

The study's authors calculate that jobs in Spain's solar, wind and hydroelectric power industries were subsidized to the tune of more than €570,000 apiece from 2000 to 2008 -- a total exceeding €28.6 billion. And that figure only includes the extra cost to energy consumers of being forced by the government to buy renewable energy at prices several times higher than market rates for conventional power. The authors didn't calculate direct subsidies, such as grants to build solar farms, because the government doesn't even know how much money it has handed out to the renewables industry. But the direct-subsidies tally is at least €1.1 billion.

Some commentators have reported that Spain has lost 2.2 jobs for each job created by solar, wind or hydroelectric power producers. But the study instead is talking about opportunity cost -- the jobs that weren't created because resources were used inefficiently, or what the French economist Frédéric Bastiat meant by "what is seen and what is not seen."

Yet these "lost" jobs have a real impact, particularly when employment rolls are shrinking elsewhere. They're also politically pernicious, in that it's easier to point to a new green-collar worker than to the two or three people who remain unemployed because other jobs were crowded out.

What hasn't been reported in much detail from the Juan Carlos study is the way Spanish renewable-energy policy created an enormous investment bubble that may already be bursting. In many ways, this is the most important element of the report.

Since 2004, Spain's Socialist government has essentially guaranteed a huge return on any investment in solar, wind or hydro. It's done so by requiring electricity distributors to buy all renewable energy produced in the country, at prices that at times have been 10 times higher than market rates. This is known as a "feed-in price," and it has cost Spanish energy customers an extra €28.6 billion this decade.

Initially, the government set a regulated price for solar power of 575% of market rates for small producers and "only" 300% for larger ones. The result was a series of inefficient solar farms small enough to get the higher subsidy but often owned by the same companies. And not just by power companies: "builders, real estate companies, hotel groups and even truck manufacturers" got in on the action.

In 2007 the government finally tweaked the subsidy schedule to level the playing field for larger solar producers. Yet within four months, regulators realized that the mandated prices were still so generous that 85% of all solar-powered generating capacity due by 2010 was already in place. To rein in the market, Madrid passed still another law that sharply reduced incentives to build new solar capacity.

Firms had one year to get in under the old system, and, boy, did they work overtime to make it: Government data indicate that 83% of Spain's solar capacity was installed in those 12 months. That jump came after solar capacity had already grown by 118% in 2005, 308% in 2006, and 458% in 2007. In all, solar-power capacity in Spain grew by more than 20,000% from 2004 to 2008, a rate surpassed perhaps only by Zimbabwe's inflation.

If that's not a bubble, we don't know what is. And while it will be a few months longer before the effects of the new, stricter solar regime can be measured, it's not hard to predict sluggishness -- if not an outright bust.

Madrid's chosen method of curtailing solar-power growth is to set a quota for new installations, one that equals about 15% of the growth seen in 2008. That means the jolly green job fairy will soon be leaving: Two-thirds of the roughly 50,000 jobs created in renewables have been in construction, manufacturing and installation -- exactly the kind of growth that couldn't be maintained, and which Madrid is explicitly trying to curb now. Trade unions say the new law has already led to 15,000 solar job losses in just a few months -- and that was before the 480 that BP cut.

Some people might be tempted to conclude from Spain's experience that renewable-energy policies must simply be drawn up more tightly to avoid this kind of boom and bust. They'd be wrong.

Spanish policy shows that green dreams like renewable energy are achievable only through massive transfers of money from productive sectors to those seeking to get rich quick thanks to government mandates. And that the few jobs created greatly depend on maintaining impossible levels of growth. Even in Mr. Obama's Washington, you can't print enough greenbacks to pay for these green jobs.

from the Times of London, 2009-Apr-19, by Dominic Lawson:

Beware green jobs, the new sub-prime

When everybody seems to have the same big idea, you just know it can only mean trouble. Remember sub-prime mortgages? Now universally excoriated as the spawn of the devil, the proximate cause of the credit crunch and all that followed, a few years back “sub-prime” was everyone's darling. Financiers loved it because it generated sumptuously high-yielding debt instruments; governments, because it promised to make even the poor into proud property owners.

Now business lobbyists and governments on both sides of the Atlantic have got a new big idea. They call it “green jobs”. Leading the pack is, as you might expect, Barack Obama. The president recently defended a vast package of subsidies for renewable energy on the grounds that it would “create millions of additional jobs and entire new industries”.

In Britain, the business secretary, Lord Mandelson, promises billions in state aid for the same purpose. To add verisimilitude, last week he gave a royal wave from the inside of a prototype electric Mini. Mandelson's chauffeur was a representative of the lower house: the transport secretary, Geoff Hoon.

The occasion for this photo opportunity was the government's proposal to offer a £5,000 subsidy to anyone buying an electric car of a type not yet available: exact details to be given in Alistair Darling's forthcoming budget. The idea is to create a “world-beating” British-based electric-car-manufacturing industry, while also attempting to meet Gordon Brown's promise to have the nation converted to electric or hybrid cars by 2020.

That remarkable prime ministerial pledge predated the recession; its motive was to demonstrate that Britain was “leading the world in the battle against climate change”. We aren't, as a matter of fact; but under new Labour we have certainly led the world at claiming to do so. Mandelson expressed this almost satirically last week when he declared that “Britain has taken a world lead in setting ambitious targets for carbon reduction”.

As ever, new Labour confuses announcements and newspaper headlines with real action. Whenever it becomes obvious even to ministers that Britain will not meet its current carbon reduction target, they replace it with a yet tougher target, only with an extended deadline.

It does not yet seem to have occurred to new Labour that this is making it look ridiculous, especially to the environmentalists whose support it is presumably trying to solicit. Or perhaps it has, but it would rather that than lose our “world leadership” in target-setting.

There is something almost comical in the government's belief that the electric car, dependent as it is on the national grid, is a sort of magic recipe for reducing carbon emissions. Some months ago President Sarkozy of France had an identical idea and commissioned a report on the prospects for turning Renault and Citroën into producers of mass-market electric vehicles. The report concluded that “the traditional combustion engine still offers the most realistic prospect of developing cleaner vehicles simply by improving the performance and efficiency of traditional engines and limiting the top speed to 105mph. The overall cost of an electric car remains unfeasible at about double that of a conventional vehicle. Battery technology is still unsatisfactory, severely limiting performance”.

Note that this crushing verdict came in a country where electricity is for the most part generated by nuclear power, which produces no CO2. In this country, more than three-quarters of the grid's power comes from the fossil fuels of gas and coal. [Note that this paragraph was typographically mangled by the Times and repaired by the AMPP Ed.]

Presumably it is the latter that accounts for the fact that when the London borough of Camden commissioned a study to see whether it should introduce electric vehicles for some of its services, it found that “EVs relying on the average UK mix of energy to charge them were responsible for significantly more particles of soot that lodge deeply in the lungs . . . than the average petrol-powered car”.

If all our electricity were to be generated by wind power, without any fossil-fuel back-up, this criticism would not apply. Then the cars could take days, rather than hours, to recharge (depending on the weather) and would be so expensive to run that driving would become the exclusive preserve of the rich.

A further absurdity is that electric cars are suitable only for short rides within urban areas – precisely where we are being encouraged to abandon cars and use public transport. Ken Livingstone exempted electric cars from his congestion charge as if, in addition to their suppositious environmental benefits, they also had the magical property of being incapable of contributing to congestion. As the Ecologist magazine has reported: “The focus on electric vehicles and the political love they get is totally misguided . . . to have that as the spearhead of government transport carbon-reduction policy is insane.”

The magazine is controlled by Zac Goldsmith, the prospective Conservative candidate for Richmond Park and team Cameron's environmental guru. Last week his colleague George Osborne took a different tack, observing that the absence of plans for a national network of charging points meant that “the Labour plan is like giving people a grant to buy an internal combustion engine, without bothering to set up any petrol stations”. Osborne had his own suggested grant to create “green jobs”: “We will give every household a new entitlement to £6,500 of energy-saving technologies.”

I'm not sure how the Tories came up with the figure of £6,500. It is pointedly bigger than Labour's proposed £5,000 electric car subsidy; but all these figures are preposterous. If you multiply £6,500 by the number of households in the land, you get to £160 billion, bigger on its own than the national debt that Osborne has repeatedly told us is unaffordable.

Electoral bribes apart, there is a more serious misconception behind the idea that ploughing subsidies into the “green economy” is a sure-fire way of boosting domestic employment. At best it will move people from one economic activity to another. Labour's plans would subsidise car production workers to move from making conventional models to electric vehicles, which hardly anyone wants to buy. Osborne's proposals would subsidise the double-glazing and home insulation industry and suck in many workers gainfully employed (without subsidy) elsewhere.

The key to a successful, wealth-generating economy is productivity. Saving energy is what businesses have done already, because it lowers their production costs. The problem with any form of subsidy is that it makes the consumer (through hidden taxes) pay to keep inherently uneconomic businesses “profitable”. Meanwhile, diversified energy companies such as Shell, with plenty of speculatively acquired wind-farm acreage, are salivating at the plans by Obama to introduce cap-and-trade carbon emissions targets for American industry.

Obama's energy secretary, Steven Chu, had some soothing words for US manufacturing companies that complained that the new policy will make them even less competitive with Chinese exporters, since the people's republic has indicated that it has no intention of inflicting a similar increase in energy costs on its own producers. He suggested that America might have to introduce some sort of “car-bon-intensive” tariff on Chinese goods. One of China's envoys, Li Gao, immediately retorted that such a carbon tariff would be a “disaster”, since it could lead to global trade war.

Actually, Mr Li is right: and this is how an achingly fashionable and well-intentioned plan to create “millions of new green jobs” could instead end up making the global economy even sicker than it is already.

from the Los Angeles Times, 2009-Apr-24, by Margot Roosevelt:

California to limit greenhouse gas emissions of vehicle fuels

The Air Resources Board adopts a landmark regulation expected to slash gasoline consumption by 25% and encourage development of low-carbon fuel sources for cars and trucks.

California took aim Thursday at the oil industry and its impact on global warming, adopting the world's first regulation to limit greenhouse gas emissions from the fuel that runs cars and trucks.

The Air Resources Board voted 9 to 1 in favor of the complex new rule, which is expected to slash the state's gasoline consumption by a quarter in the next decade. It seeks to expand the market for electric and hydrogen-fueled vehicles and jump-start a host of futuristic biofuels to replace corn-based ethanol, as well as oil.

Gov. Arnold Schwarzenegger praised the "first-in-the-world low carbon fuel standard," noting that 16 other states are looking to California as a model and that President Obama has called for a national standard.

It will "not only reduce global warming," he said, "it will reward innovation, expand consumer choice and encourage the private investment we need to transform our energy infrastructure."

The regulation requires producers, refiners and importers of gasoline and diesel to reduce the carbon footprint of their fuel by 10% over the next decade. And it launches the state on an ambitious path toward ratcheting down its overall heat-trapping emissions by 80% by mid-century -- a level that some scientists deem necessary to avoid drastic global climate disruption.

Experts say California faces droughts, fresh water shortages, rising sea levels and widespread extinction of plants and wildlife species from growing carbon dioxide emissions worldwide.

Scores of industry executives and environmental activists testified on the hotly debated fuel regulation at a daylong public hearing in Sacramento before the vote. Corn ethanol producers complained that the rule unfairly exaggerated the effects of using food crops for energy. Cattlemen argued that diverting corn to ethanol has upped their feed costs.

Canada's consul general in San Francisco charged that the rule discriminates against oil from Alberta tar sands. And former Gen. Wesley Clark, testifying for the ethanol industry, said the board failed to account for carbon-intensive effects of U.S. military forces protecting oil reserves in the Middle East.

The regulation calculates the life cycle of fuels from their extraction -- or cultivation, in the case of biofuels -- to their combustion. But the indirect effect of replacing cropland used for energy will also be included, and the board's calculations of those land-use effects is strongly disputed by corn ethanol producers.

Meanwhile, U.S. oil industry representatives were also divided. The Western States Petroleum Assn. opposed the rule, disputing the air board's contention that it will lower the cost of fuel to consumers.

"This is the most transforming regulation any of us has ever undertaken," said Catherine Reihis-Boyd, the group's Sacramento lobbyist, noting that it involved "fuels that haven't even been envisioned and certainly not commercialized."

But James Uihlein, a Chevron representative, endorsed the standard, and its indirect land-use provisions, as "sending the right signal to innovators" to produce advanced fuels.

Not all of the alternative fuel companies were in sync, however. An executive from Fulcrum BioEnergy, a Pleasanton, Calif., company that makes cellulosic ethanol from post-recycled garbage, said it will "create a market" for his product. But a representative of Verenium, a cellulosic ethanol company with offices in San Diego, asked the board to hold off on counting land-use effects.

Board members acknowledged that the science of evaluating the carbon footprint of all fuels is still developing. It asked staff to further study the land-use issue and report back in January 2011. The standard is scheduled to take effect in 2012, gradually ramping up to the 10% reduction by 2020.

"We have done a lot to make cars cleaner and more efficient, but the petroleum industry, which has a lot more reserves, has gotten off scot-free with respect to greenhouse gases," said board Chairwoman Mary D. Nichols. "Now we are creating the framework for a new way of looking at automotive fuels. No longer will petroleum be the only game in town."

Some environmentalists who favor a stronger emphasis on electric vehicles said the rule did not go far enough in questioning the land-use effects of ethanol from nonfood crops such as switch grass or farmed trees. Others urged the board to monitor the construction of advanced fuel facilities so they would not increase inner-city air pollution.

Roland Hwang, transportation director of the Natural Resources Defense Council, criticized the board's delay of final action on land-use impacts, which he said were "critical safeguards for our native forests . . . and scenic wild lands."

But he added that the new standard means "the handwriting is on the wall: Big Oil needs to stop investing in dirty, high-carbon fuels and move to produce more advanced biofuels."

from the Wall Street Journal, 2009-Apr-17, by Kimberley A. Strassel:

Alternative Fuel Folly

Every so often Washington throws out a controversy that brilliantly illustrates everything wrong with Washington. Consider the brewing outrage over "black liquor."

This is the tale of how a supposedly innocuous federal subsidy to encourage "alternative energy" has, in a few short years, ballooned into a huge taxpayer liability and a potential trade dispute, even as it has distorted markets and led to greater fossil-fuel use. Think of it as a harbinger of the unintended consequences that will accompany the Obama energy revolution.

Back in 2005, Congress passed a highway bill. In its wisdom, it created a subsidy that gave some entities a 50-cents-a-gallon tax credit for blending "alternative" fuels with traditional fossil fuels. The law restricted which businesses could apply and limited the credit to use of fuel in motor vehicles.

Not long after, some members of Congress got to wondering if they couldn't tweak this credit in a way that would benefit specific home-state industries. In 2007, Congress expanded the types of alternative fuels that counted for the credit, while also allowing "non-mobile" entities to apply. This meant that Alaskan fish-processing facilities, for instance, which run their boilers off fish oil, might now also claim the credit.

What Congress apparently didn't consider was every other industry that might qualify. Turns out the paper industry has long used something called the "kraft" process to make paper. One byproduct is a sludge called "black liquor," which the industry has used for decades to fuel its plants. Black liquor is cost-effective, makes plants nearly self-sufficient, and, most importantly (at least for this story), definitely falls under Congress's definition of an "alternative fuel."

All of which has allowed the paper industry to start collecting giant federal payments for doing nothing more than what it has done for decades. And in fairness, why not? If Congress is going to lard up the tax code with thousands of complex provisions designed to "encourage" behavior, it shouldn't be surprised when those already practicing said behavior line up for their reward, too.

In March, International Paper announced it had received $71 million from the feds for a one-month period last fall. The company is on track to claim as much as $1 billion in 2009. Verso took in nearly $30 million from the operation of just one mill in one quarter of last year. Other giants are gearing up to realize their own windfalls. Wall Street has gone wild, pushing paper-company stocks up dramatically in recent weeks.

Happy as industry is to have this new federal lifeline in the middle of a recession, it is the only one smiling. Foreign competitors are screaming that the subsidy is unfairly propping up the U.S. industry in tough times. They claim the U.S. industry is ramping up production simply to realize more tax money. Canadian forestry firms are already demanding their government file a trade complaint.

In order to qualify for the credit, alternative fuel must be mixed with a taxable one. (The government might want to encourage alternative fuels, but not to the extent that it loses its gas-tax revenue.) This means that to qualify, the paper industry must mix some diesel with its black liquor. This has sent environmentalists around the bend. They have accused the industry of burning fossil fuels that it didn't used to burn, simply to get the tax dollars. (The industry has not been clear on whether it is, in fact, using more diesel.)

And then there's Congress, which is suddenly looking at billions more in red ink than expected. In 2007 it estimated a 15-month extension of the credit would cost taxpayers $333 million. It has since revised those numbers to take into account black liquor and is now figuring a one-year cost of more than $3 billion. Wall Street analysts are talking $6 billion. Senate Finance Committee bosses Max Baucus and Charles Grassley are reportedly aware of the issue, none too happy, and they are working to bar the paper industry from receiving the credit.

But this, in turn, has tossed up uncomfortable questions. The paper industry argues that if the government is going to be in the business of rewarding good behavior, it ought to do it equally. Is green policy only to be aimed at dirty or economically unviable actors? Is black liquor any less useful than ethanol or biodiesel, and if so why? If not, shouldn't Washington encourage its use? Isn't every green subsidy in fact the basis for a trade dispute? These are questions Congress has no interest in confronting, since it would expose the muddle that is its entire green-energy program.

All of this is highly amusing, if not surprising. Every government attempt to manage energy markets has resulted in similar disarray. Look at the havoc that came from the energy price controls, regulations and subsidies of the 1970s. Or look, more recently, at the ethanol fiasco, and the accompanying soaring food costs. Energy powers the economy. Mess with energy markets, and mess with everything else. When will Washington learn?

from the Wall Street Journal, 2009-May-5, by Stephen Power:

White House to Step Up Ethanol Efforts

WASHINGTON -- The Obama administration on Tuesday will step up efforts to increase the availability of ethanol at filling stations and to speed up subsidies to struggling biofuel producers. But the trade-off is that the administration is also expected to propose a rule that could make certain biofuels look less climate-friendly.

At a news conference led by the heads of the Agriculture Department, Energy Department and Environmental Protection Agency, the administration is expected to announce the creation of an interagency group that will be charged with forging a plan to encourage the production of more automobiles that can run on high-level ethanol blends, and increase the availability of high-level ethanol blends at gasoline stations.

President Barack Obama is also expected to direct the Agriculture Department to expedite the awarding of loan guarantees to support the development and construction of more biofuel refineries.

But at the same time, the EPA is expected to propose measuring the greenhouse-gas emissions associated with biofuel production -- including emissions that result overseas when farmers world-wide respond to higher food prices by converting forest and grassland to cropland. The EPA decision could undercut the environmental rationale the ethanol industry has used to sustain support for its government subsidies.

In an effort to ease the sting of Tuesday's announcement, the administration scheduled a news conference to discuss not only the EPA rulemaking but also what it called Mr. Obama's "commitment to advance biofuels research and commercialization."

The question of whether biofuels help or harm the climate has been heating up for months in scientific, corporate and environmental circles. A study published last year in the journal Science found that U.S. production of corn-based ethanol increases emissions by 93% compared with using gasoline, when expected world-wide land-use changes are taken into account.

Some scientists and many biofuel proponents have challenged the Science study, saying it relied on unrealistic assumptions. There is also disagreement among scientists and economists over how to measure the impact of land-use changes in one country on land-use changes in another.

"We're ready to begin the debate" over how to measure ethanol's environmental impact, said Matt Hartwig, a spokesman for the Renewable Fuels Association. "But let's get it out there, so we can talk about it."

The efforts by environmental regulators to assess biofuels' impact on the environment comes at a difficult time for the ethanol industry. Demand for the corn-based fuel has been falling, as consumers have cut back on driving amid the economic crisis.

The plunge in oil prices from last summer's record high, meanwhile, has pushed down ethanol prices and cut producers' profits. Last month, an ethanol trade group petitioned the EPA to allow the ethanol levels in gasoline blends to be as high as 15%, up from the current 10%. Without the increase, the group said the U.S. won't be able to meet a congressional mandate requiring some 36 billion gallons of renewable fuel to be blended into the domestic fuel supply by 2022.

from the Wall Street Journal, 2009-Apr-17, by Marc Siegel:

When Doctors Opt Out
We already know what government-run health care looks like.

Here's something that has gotten lost in the drive to institute universal health insurance: Health insurance doesn't automatically lead to health care. And with more and more doctors dropping out of one insurance plan or another, especially government plans, there is no guarantee that you will be able to see a physician no matter what coverage you have.

Consider that the Medicare Payment Advisory Commission reported in 2008 that 28% of Medicare beneficiaries looking for a primary care physician had trouble finding one, up from 24% the year before. The reasons are clear: A 2008 survey by the Texas Medical Association, for example, found that only 38% of primary-care doctors in Texas took new Medicare patients. The statistics are similar in New York state, where I practice medicine.

More and more of my fellow doctors are turning away Medicare patients because of the diminished reimbursements and the growing delay in payments. I've had several new Medicare patients come to my office in the last few months with multiple diseases and long lists of medications simply because their longtime provider -- who they liked -- abruptly stopped taking Medicare. One of the top mammographers in New York City works in my office building, but she no longer accepts Medicare and charges patients more than $300 cash for each procedure. I continue to send my elderly women patients downstairs for the test because she is so good, but no one is happy about paying.

The problem is even worse with Medicaid. A 2005 Community Tracking Physician survey showed that only 50% of physicians accept this insurance. I am now one of the ones who doesn't take it. I realized a few years ago that it wasn't worth the money to file the paperwork for the $25 or less that I received for an office visit. HMOs are problematic as well. Recent surveys from New York show a 10% yearly dropout rate from the state's largest HMO, the Health Insurance Plan of New York (HIP), and a 14% drop-out rate from Health Net of New York, another big HMO.

The dropout rate is less at major medical centers such as New York University's Langone Medical Center where I work, or Mount Sinai Medical Center, because larger physician networks have more leverage when choosing health plans. Still, I am frequently hamstrung as I try to find a good surgeon or specialist to refer one of my patients to.

Overall, 11% of the doctors at NYU Langone don't participate in at least two insurance plans -- Aetna or Blue Cross, for instance -- so I end up not being able to refer my patients to some of our top specialists. This problem, in addition to the mass of paperwork and diminishing reimbursements, is enough of a reason for me to consider dropping out as well.

Bottom line: None of the current plans, government or private, provide my patients with the care they need. And the care that is provided is increasingly expensive and requires a big battle for approvals. Of course, we're promised by the Obama administration that universal health insurance will avoid all these problems. But how is that possible when you consider that the medical turnstiles will be the same as they are now, only they will be clogged with more and more patients? The doctors that remain in this expanded system will be even more overwhelmed than we are now.

I wouldn't want to be a patient when that happens.

Dr. Siegel, an internist and associate professor of medicine at the NYU Langone Medical Center, is a Fox News medical contributor.

from the San Mateo County Times, 2009-Apr-17, by Sean Maher:

Doctor gets jail for prescribing Prozac online

REDWOOD CITY — In what a defense attorney called a major sea change in how the law treats Internet medicine, a Colorado doctor was sentenced