Mulling Over Bush's Proposal

Bush's plan to alleviate the credit crunch (expanding FHM loans) seems mild compared to the political alternatives. The Wall Street Journal today discussed its without comparison.

No one wants to see borrowers lose their homes, and the good news is that private lenders are already working with late-payment borrowers to refinance the terms of these subprime loans. What's troubling about the FHA expansion plan is that the insurance guarantee places taxpayers atop the housing bubble. Uncle Sam would insure tens of billions of dollars in new mortgage liabilities, and just when default levels are cascading.
Worse, both the White House and Congress want to suspend the FHA's downpayment requirements to insure even zero-equity loans. They should read a new study by the Office of Federal Housing Enterprise Oversight (OFHEO), which reviewed 5,000 FHA loans and found that borrowers "who make no downpayment at all have the highest default rates." Sometimes these default rates were three times higher than high downpayment loans. In the latest "FHA modernization" bill, some borrowers would have no equity in their home.

Democratic Majority: "Improve World Image... With Protectionism"

The Wall Street Journal editorial page makes an interesting point:

Democrats are promising to improve America's image in the world if they retake the White House next year. Tell that to Peru and Colombia, which are watching Democrats in Congress renege on free-trade assurances that are barely a month old.

House Democrats pulled that fast one late last Friday, shortly before a holiday weekend when few were watching. They also announced their opposition to a free-trade pact with South Korea only a day before the deal was signed, and for good measure they announced that an extension of trade promotion authority (which expired June 30) is essentially dead as long as they run Congress. Ah, bipartisanship.

CEOs Saddled Up with HillaryCare? - Plus Schwarzenegger Pushes for Universal Coverage

The Wall Street Journal's on top of a story regarding Wal-Mart CEO Lee Scott hooking up with labor unions to promote "universal health care."

As previously reported on this blog, hiking health care spending tends to do do more to the detriment of the bourgeois pocketbook than it helps (Conover, et al). The OJ juries of media and convenience fail to pass judgement on the deceptively appealing plan of Hillary Care.

WSJ explains:

But any money government spends on health care has to come from somewhere (read: taxpayers). Health care is a big reason that the overall tax burden is as high as it is in most of Europe. According to the OECD, the "tax wedge" as a share of all labor costs was only 29.11% in the U.S. in 2005. It was above 40% in most of Europe, and above 50% in France and Germany. These countries spend little on defense, so "national health care" and other social services explain the high tax burden. We haven't noticed these economies being especially "competitive" of late.

Before deciding that corporations that are symbols of private enterprise such as Wal-Mart inherently understand market effectiveness and capability, thus giving them deistic authority on health care, some facts should stay in the back of our minds. Primarily that a major cost to these businesses is health care benefits, and what's more convenient than the idea of dumping it on the taxpayer.

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As Oxford Analytica explains, there are three commonly attributed advantages to Universal Coverage: access, less free-riders, and less adverse selection; while having two disadvantages: affordability and financing. Noble as it sounds (perhaps with shaky redistribution morals), sustainability is non-existent.

The most attention-grabbing Hillary Care issue of late is Gov. Arnold Schwarzenegger's (R-CA) push for universal coverage in California. David Gratzer, M.D. a Senior Fellow at the Manhattan Institute and author of The Cure: How Capitalism can Save American Health Care issued a must-read critique of the plan a couple of weeks ago. He explains that the Schwarzenegger plan regulates how and how much providers spend on their policies, institutes outrageous physician fees, and hikes taxes. Perhaps one of the most enlightening observations goes beyond revealing plan failures, and back to examining how the status quo is portrayed.

The uninsured are depicted in popular culture as lost and forgotten--the single mother in the emergency room struggling to make ends meet for her three children. But the uninsured are a heterogeneous group. Drawing on Census Bureau data, the Blue Cross Blue Shield Association found in a 2003 report that a third of the uninsured have family incomes of more than $50,000 a year, and for 16% of the uninsured, incomes exceed $75,000 a year. A Health Affairs study on nonpoor uninsured Californians pegs their average annual health spending at $200 per person. Many people have done the math and have decided not to get coverage. In addition, a third of the uninsured already qualify for Medicaid or some other type of program. Of the remaining third, many are without insurance for only a brief period, usually less than a year.

To be sure, there are 8 million Americans who slip through the cracks, unable to get coverage. But that's far fewer than the commonly quoted disaster figure of 46 million.

Dr. Gratzer explains that only six states have more service mandates than California. Plans cover acupuncture, in vitro fertilization, chiropractors, and so forth while repealing measures that protect providers from competition. He also spends time explaining the necessity of Health Savings Accounts (HSAs), which I have long advocated. He also laments the folly of poorly structured tax incentives while maintaining the need for giving breaks to those who can't acquire care.

California needs to allow businesses to provide plans to cover catastrophes, it should engage in HSAs, adjust the tax code, and maintain innovation with accessibility. This won't happen by using tax dollars to provide coverage to families earning $60,000 annually, or by divorcing choice from consequence in health care.

Malpass Takes Aim at Trade Grumblers

The US has a powerful, growing economy, yet we project the "wrong path" of an aging society drowning in debt and burdening the world with risk. This gloomy fiction distorts our domestic and international economic policy-making. We should reject it and launch a more energetic vision of global prosperity built on economic freedom and dynamism.

Thus David Malpass, chief economist at Bear Stearns & Co, opened his FORBES column "The Triple Deficit Paralyzes Policy Vision" last month. Being a big fan of Steve Forbes (I wish he'd landed the White House if he could have been remotely electable), this is very similar rhetoric.

The trade deficit is a terribly convenient avenue to take pot shots at free trade. Wavering support creates a notably hostile climate for free traders, as was evident in the last election. Along with other issues of baiting economic ignorance--such as previously addressed tax cuts, "negative savings rates," and "skyrocketing deficits," protectionism baits the fears of American blue-collar workers, and quickly gains clout.

While protectionism certainly wasn't a hot-button issue, there are more than a couple of disturbing signs. The Wall Street Journal reports, "Pew Research data show the sense of vulnerability among workers. A recent poll shows low-skilled U.S. workers are over 40% more likely to believe their jobs could be sent offshore."

Malprass continues:

The US is the world's biggest producer, exporter, seller, saver and innovator. On average it adds 30% more to global GDP each year than does all of Asia (45% more in 2006), with one-tenth the population. US employment, wages and profits are at record levels. We're the biggest source of foreign aid, and the only major source of its most effective component: private donations.

Despite dire fiscal predictions the federal budget is on a trend that could bring it into balance at the end of the decade, with a debt-to-GDP ratio well below the Clinton Administration's average. Talk of our recklessly low "savings rate" circles the globe yet arbitrarily excludes the economy's trillions of dollars of compound gains. Calculated properly, US households have more financial savings--and in mos years add more-- than the rest of the world combined.

The loudest hue and cry is over our trade deficit, which is blamed for dragging down our economy, as well as everyone else's. Yet the view that our trade deficit costs jobs and adds to global financial risk can't be reconciled with our 4.5% unemployment rate and the eager flow of long term, low-cost foreign capital into US investments.

Fear of fiscal, trade and savings deficits as crippled domestic policy-making..."

(emphasis added)

Steve Forbes also explains:

Anti-free-trade sentiment is being fueled by our record trade deficits. Congress is full of destructive proposals... While most economists know well the virtues of free trade, they are still tied to the notion that trade deficits or surpluses matter. A surplus is equated to a country's turning a profit and a deficit to a nation's running at a loss. But nations don't trade with each other; individual sand entities do.

FORBES has had a deficit with its paper supplier for more than 89 years. Yet this 'imbalance" persists because each side thinks the transaction is beneficial... CNN has a deficit with Lou Dobbs, it pays him far more than anything he actually buys from the network General Motors similarly has a deficit with CEO Rick Wagoner Yet the red ink continues because the parties find it advantageous for it to continue. CNN and GM each get the services of the individual employed, and each individual gets cash and other forms of compensation in return...

While preaching free trade, the economics profession helps undermine it with this zero-sum mentality focusing on so-called balance of trade. Remember, this year marks the 400th anniversary of the settlement in Jamestown, Va. Since that time, America has run trade deficits for all but some 50-odd years. Just look at what all that economic sinning has done.

Simplistic? Perhaps. True? Let me know.