Geithner-Summers Miss the Elephant

Today in the Washington Post Tim Geithner and Larry Summers present an introduction to the Obama administration's five-point plan to prevent future financial crises. Here it is, along with an RMC grading:

1. Raise capital and liquidity requirements, especially on the biggest players. Federal Reserve and "council of regulators" will supervise. Grade: B
   
2. Force "robust reporting requirements" and retention of some assets on issuers of asset-backed securities. Grade: C
   
3. "[S|tronger framework for consumer and investor protection" to fight predatory lending, e.g., in sub-prime mortgage lending. Grade: F
   
4. Feds will "establish a resolution mechanism that allows for the orderly resolution of any financial holding company whose failure might threaten the stability of the financial system." Grade: B-
   
5. Feds will "lead an effort" to improve international financial standards. Grade: incomplete
   

You can see what's missing here, and the chaps at Seeking Alpha are right on it. Yes! Crazy bank compensation and breakdown of corporate governance--Not!

The Geithner-Summers Plan and the Seeking Alpha response is discouraging. The problem is not the banks; the problem is the government. It was not reckless banks that sluiced mortgage lending upon the land; it was Fannie Fire-hose and Freddie Fire-Hydrant. It was not predatory lending that caused sub-prime lending; it was government policy that demanded that mortgage lenders lend to sub-prime borrowers.

That's the basic problem. Governments are sluicing out credit (in which the banks are middle-men) and then unaccountably shocked at the subsequent flood. And Geithner and Summers don't have a plan for that.

We aren't going to solve this problem until government stops meddling with the credit markets and trying to gun the business cycle.

The best way to deal with constant credit crises is to rebalance the financial system away from debt towards equity. But that will be just about impossible to do.

Why? Because government is the biggest player in the debt market. And they play both ends against the middle. First they float out their paper to the world's widows and orphans, then they print money and inflate their obligations away.

But Geithner and Summers write not a word that they are going to do anything about that. Heck no. All that money is power, and politics is all about power.

Unless we citizens rise up and demand that the power of government be limited.

Safeway's Health Plan

In the recent presidential election we heard a lot about Obama's health plan. Candidate Obama was in favor of more government health care. And we heard about McCain's health plan. He was in favor of taxing health benefits above a certain threshold and allowing a national market in health insurance.

But we didn't hear too much about Safeway's health plan. And that is ridiculous. US retail, corporations like Safeway and Wal-Mart, are the world champions when it comes to retail productivity. They might have something to add to the national debate.

Well, now the CEO of Safeway, Steven A. Burd, has corrected the obvious omission. He has written an oped in the Wall Street Journal to tell us all about the Safeway health plan.

Based on the results of Safeway's Healthy Measures plan, Burd thinks that we can lower national health care costs by 40%.

At Safeway we believe that well-designed health-care reform, utilizing market-based solutions, can ultimately reduce our nation's health-care bill by 40%.

The magic bullet? Reward employees for healthy life styles.

Burd trots out the facts, which Safeway discovered in 2005.

1. 70% of all health-care costs are the direct result of behavior.
2. 74% of all costs are confined to four chronic conditions (cardiovascular disease, cancer, diabetes and obesity).
3. 80% of cardiovascular disease and diabetes is preventable
4. 60% of cancers are preventable
5. more than 90% of obesity is preventable.

Well, it is not exactly a surprise. We've been seeing o lot of facts like that recently. But never in quite such a bald statement.

So what is Safeway doing about it? It is rewarding its employees with discounts on their health care premiums if they pass healthy life-style tests.

Employees are tested for the four measures cited above and receive premium discounts off a "base level" premium for each test they pass. Data is collected by outside parties and not shared with company management. If they pass all four tests, annual premiums are reduced $780 for individuals and $1,560 for families. Should they fail any or all tests, they can be tested again in 12 months. If they pass or have made appropriate progress on something like obesity, the company provides a refund equal to the premium differences established at the beginning of the plan year.

Wow. This seems pretty extreme. So what do the employees think about this? They like it and they want more of it.

When surveyed, 78% of our employees rated our plan good, very good or excellent. In addition, 76% asked for more financial incentives to reward healthy behaviors. We have heard from dozens of employees who lost weight, lowered their blood-pressure and cholesterol levels, and are enjoying better health because of this program. Many discovered for the first time that they have high blood pressure, and others have been told by their doctor that they have added years to their life.

The next challenge for Safeway is to get its unionized workforce to buy into this. Yep. The current system only applies to its non-union employees.

Neither Social Nor Democratic

The folks at the British Spectator are having a grand old time this week in the aftermath of the Labour Party's wipeout in local and European elections. People are even talking about the end of the Labour Party.

We've heard that one before, of course. Pundits are always prophesying the end of political parties when they suffer at the polls.

Maybe this really is the end of the Labour Party. But probably not. Anyway, every nation has its Gimme-stuff-for-free Party. If Labour fades away then another social democratic party will appear to take its place.

But that won't change the fact that social democratic parties are a lie. They are neither social nor democratic.

The word "social" comes from the Latin "socius." It means "companion, ally, associate" according to Online Webster. But that is exactly what a social democratic party is not. It is not social, but statist, with the natural cooperative instincts of mankind brutally chopped down by overweening state power. Democratic? Well, the only way the people would get to rule is by minimizing the power of government so that they could rule themselves in their private families, churches, and associations. Otherwise democracy is the rule of the politicians.

But we don't get that, do we? And the reason we don't get it is the power hunger of the progressive educated elite. They want a political system where they rule, benevolently of course, through vast national bureaucratic administrative structures staffed by their tame experts. But when you get a gigantic hierarchy like that you cannot have a "social" system, characterized by companions, allies, associates. You have a top-down oppressive system obsessed with rule-making and control.

In Britain, this has reached parody, where people openly laugh and sneer at the "target culture" of the Labour government. The target culture is the hopelessly ineffective attempt to force some kind of accountability downwards from the top onto the people actually delivering public services. But it always ends up being a system to make the chaps on top look good, rather than actually direct the people at the bottom to deliver effective social services.

The real joke, or the tragedy, is that we don't need all this government power and oppression. We already have an workable system of social democracy, the system of voluntary cooperation we call capitalism. It forces powerful people to work for the benefits of the consumers. It controls economic power by the system of profit and loss. Screw up enough, and you go out of business.

But that is the last thing that the social democrats in the Labour Party or the US Democratic Party would ever think of supporting.

You can understand their point of view. What would happen if The People just didn't know enough, or care enough, to make the right decision? And what would the progressive educated elite do if it didn't have the power to boss people around--in their own best interest, of course?

Here's another question. What happens if The Progressive Educated Elite doesn't know enough, or care enough, to make the right decision?

The sad thing is that, when the whole system crashes down, it will be the supporters of the social democratic parties that will suffer most. The skilled middle class will do fine, because it has the talent and the skills to thrive whatever happens. But the folk who put their trust in politicians will pay a terrible price.

And that is a crying shame.

Auto Bailouts Give the Lie to Obamanomics

The folks that voted for President Obama felt that Obama would bring a new culture to American politics. John R. Talbot's Obamanomics: How Bottom-up Economic Prosperity Will Replace Trickle-down Economics provides a look at what a pro-Obama partisan thinks an Obama economy would look like. Today, America is a travesty.

The rich buy boats and cars and diamonds and jewels and throw lavish parties, while their fellow citizens scrape by trying to pay the rent and feed their families.

Under Obama, things will be different.

In a bottom-up economy, the rules of business and government are fair and apply to all... They feel that their personal success will be determined by their hard work and effort, not by who they know or who they are related to.

It's difficult to characterize the auto bailouts, perhaps the biggest US government intervention into industrial policy ever, as bottom-up Obamanomics. Not when school-teachers and pensioners, holders of auto company bonds, are getting the shaft while the UAW and UAW members are getting 55 percent of Chrysler.

Newt Gingrich calls this a scandal, on a par with the Teapot Dome scandal of the 1920s when oilman Harry Sinclair got drilling rights to the Teapot Dome in Wyoming after giving Interior Secretary Albert Fall a hefty bribe.

My guess is we are in the early stages of a huge backlash against the Democratic Party. The American People hate the bailouts. They hate the stimulus. They hate the huge deficits. And in the months and years to come, politicians will find out how to lead them and give electoral muscle to this rage.

In the Bush years, liberals convinced themselves that Bush was bad and Dems were good, and that was all you needed to know. But I think that they are living in Fantasyland. Americans hate the bailouts; they will hate federal control of health care; they will hate renewable energy and cap-and-trade.

It will take time. But one day liberals will wake up and find that the American people want them out of there, fast. It is one thing to talk about wonderful health care. It is another thing to change the relationships that American women have with their doctors. It is one thing to talk about bottom-up economics. It is another thing when you've just paid off your supporters with a crony-capitalist deal. It is one thing to talk about wonderful green energy and millions of green jobs. It is another thing to increase taxes on energy.

The reality check on all these liberal notions is right ahead. And it won't be pretty.

"Far Right" Party Wants Nationalization

Why does the left-wing media call national-socialist parties like Britain's BNP a "far right" party? The answer is pretty simple. Because they can. And because they need to. Jonah Goldberg, author of Liberal Fascism, notes that Britain's BNP has a left-wing economic agenda. He quotes British Conservative MEP Daniel Hannan:

Look at the BNP's manifesto: it wants nationalisation, subsidy, higher taxes, protectionism and (sotto voce) the abolition of the monarchy. And look at where its votes came from. The BNP is a symptom of Labour's collapse.

There really isn't much water between Labour and the BNP, except that Labour is racist in a pro-immigrant way, rather than in an anti-immigrant way. You could say that Labour is an "anti-national" socialist party, whereas the BNP is a full-on national socialist party.

But both Labour and the BNP hate freedom, hate responsibility, hate capitalism, hate business. They both want to return to a pre-modern world where people are completely cocooned by the community and the political.

There's only one big difference. The Labour Party gets away with its atavisms. The BNP does not.

Meanwhile the left-wing media get to call the BNP a far-right party. Hannan, again.

It's a brilliant media trick in Europe to always refer to them as “the far right”. The target of that is the mainstream right... When somebody reads that, it doesn't make them think any worse of the BNP, it makes them think worse of the right. Which, of course, is why they do it.

One day, of course, the left-wing media won't be able to define the terms of discourse. But that time is not yet.

Conservative Common Sense

Candidate Obama got all the way from the US Senate to the White House on the strength of "Hope" and "Change." Hugh Hewitt's tame ad guy, Bear in the Woods, thinks that we can and should learn from the president.

I've written a lot here about the need for an encompassing mantra that can accommodate the range of conservative positions, yet at the same time speak to individual, single issue niches.

Bear tries out a few notions, like "Truth" and "More Than a Feeling," but he settles on "Common Sense."

Common Sense speaks to reason, wisdom, and truth. Common Sense has broad appeal, and applies to conservative positions on every single policy. Common Sense tells us you can't get out of debt by spending more, you can't alienate achievers and hope to achieve, you can't protect from a position of weakness, and you can't improve the efficiency of anything by applying more government. Common Sense has strong roots in history, and is a strong statement of purpose for conservative values today. Common Sense makes sense, across the board.

Absolutely. Modern conservatism starts with Edmund Burke and his critique of extreme rationalists, "sophisters, economists, and calculators," he called them. It is well to recall exactly in what terms he excoriated them,

The age of chivalry is gone. -- That of sophisters, economists, and calculators, has succeeded; and the glory of Europe is extinguished forever. Never, never more, shall we behold a generous loyalty to rank and sex, that proud submission, that dignified obedience, that subordination of the heart, which kept alive, even in servitude itself, the spirit of an exalted freedom.

He is, of course, celebrating a certain degree of hierarchy. And in the two centuries since he wrote you can see his point. It is all very well to design all human institutions according to a rational administrative model. But you don't really get rid of hierarchy in your thirst for equality. What you do is strip hierarchy of its reciprocal obligation. You make it into a mechanical thing.

But now all is to be changed. All the pleasing illusions, which made power gentle, and obedience liberal, which harmonized the different shades of life, and which, by a bland simulation, incorporated into politics the sentiments which beautify and soften private society, are to be dissolved by this new conquering empire of light and reason. All the decent drapery of life is to be rudely torn off. All the super-added ideas, furnished from the wardrobe of a moral imagination, which the heart owns, and the understanding ratifies, as necessary to cover the defects of her naked shivering nature, and to raise it to dignity in our own estimation, are to be exploded as ridiculous, absurd, and antiquated fashion.

This is not to say that traditional society does not have its oppression and its cruelties. Of course it does. But we can certainly see that the modern era, with its vast bureaucratic, rational, administrative state and its huge corporations, is no stranger to oppression and cruelty.

What Burke argued for was a moderation in the march to the future. In other words, he argued for Common Sense. And so do we.

Sowell on Costs, Markets, and Governments

When people petition the government for a social program or a subsidy, they are not fools. They are acting completely rationally. How so?

Suppose you have developed a 2 MW wind turbine. It's a very good turbine, but nobody wants to buy it. But you are convinced that the future belongs to wind power. What do you do? Do you give up your dream of wind power for everyone, or do you put together a wind-power movement and lobby the government for "affordable wind power?"

Because it seems obvious to you that if only you can get past the prototype stage and actually get wind turbines out into the market that people will see how beneficial your turbine can be, even if, in the short term, wind power is more costly than conventional power.

Thomas Sowell analyzes how this dilemma applies to housing in his new book, The Housing Boom and Bust. He writes (p.114):

One of the biggest differences between economic decisions in the market and politcal decisions in government is that costs are an inescapable factor in economic decisions, while political decisions can often ignore costs[.]

That's why our wind power advocate is eager to turn to government. He wants to escape from the inescapable factor of cost.

What our wind power advocate also forgets is the Law of Unintended Consequences. There is no telling who may have to pay the costs that he is trying to escape.

In fact, in the housing debacle, the costs of the housing interventions fell most heavily on exactly the people that "affordable housing" policies were meant to help (p.108):

For example, skyrocketing housing prices in particular communities with severe building restrictions hit blacks especially hard, even though many of these communities have been overwhelmingly liberal in their politics... In fact, however, each of these groups, for whom much concern has been expressed, have been precisely the groups disproportionally forced out of these high housing cost communities.

Here is more:

[M]arkets usually leave no choice between changing mistaken notions or paying big-time in lost money or even outright bankruptcy... But there is no such renunciation of pet notions in Washington.

Got a pet notion? Take it to Washington DC.

OK. So what is going on? What should we learn from all this? It is really rather simple.

The market is a social arrangement that forces each individual to adjust their actions to the needs of other people, expressed through buying and selling under the price system.

Mostly, we should get what we want from adjusting our actions to the needs of other people.

Government is a social arrangement where a ruler or ruling group can force other people to adjust their actions to the needs of the rulers.

Sometimes we need force, but not often. And not usually outside the defense against enemies foreign and domestic.

Liberals understand this, just like you and me. They were withering in their criticism of President Bush for his obstinate refusal to face defeat in Iraq. They wanted him to be much more willing to adapt to changing conditions on the ground.

But what they are not willing to do is face the failures of their endless failed government programs.

Some might call this obstinacy. But that misses the point. Obviously, government is a social system that is designed to be persistent. You choose government for a social activity if you want to set it in place and not change it without good cause.

The market is the social system that is designed to change and adapt to changing circumstances.

Our problem that that in many cases we have put government to work on problems where we need adaptability. We get a rigid institution when we really need an adaptable one.

And that is a shame.