Financial Reform That Isn't

Why am I not surprised that the financial reform bill fundamentally reforms nothing?

Judd Gregg unloaded on the bill:

“The bill is a disaster because it doesn’t address the fundamental underlining causes of the economic issue, which were real estate and underwriting,” he said. “This bill became, ‘I want to score the most points against Wall Street.’ Most of the initiative of this bill wasn’t directed at solving the problem, but it was directed at scoring political points."

As previously discussed in this blog, the ultimate issue is how the bill deals with to big too fail. The linked article claims that this bill gives the feds new powers and "authorizes regulators to impose restrictions on large, troubled financial institutions. It also creates a process for the government to liquidate failing companies at no cost to taxpayers." Color me skeptical, lacking supporting detail, given prior regulatory failure, and political incentives in the bill to turn banks into engines of social justice, I don't see any hope for change at all. I think things will get worse. Note that financial markets have reacted to this "reform" bill as a non-event, focusing on the collapse of socialism in Europe instead.

Meanwhile, gold is hovering near record highs against all major currencies, the traditional investor response to global instability. Debt caused by socialist and quasi-socialist policies is the common ingredient fueling loss of confidence world wide. The Democrats in Congress are doubling down on these failed policies like some compulsive gambler convinced that the next card turned over will be the ticket to a lifetime of riches.

The fight is not over on the final details. But the fundamental approach seems flawed, whether you prefer the House or the Senate version:

The firms would face tighter regulation, such as having to keep higher capital reserves. If they failed, certain creditors would be made whole to protect the financial system, but shareholders and unsecured creditors would bear losses and pay the costs of winding them down. It would create a $150 billion fund financed by large financial companies to pay for the dissolution of failing companies. The Senate version originally included a $50 billion fund, but that was removed after critics said it would encourage bailouts and possibly limit the government's ability to assess more fees on firms.

The problem with either version is that they either implicitly or explicitly guaranty to creditors of big firms that they will be bailed out by the feds. This perpetuates To Big Too Fail as follows. The surety provided by the feds to creditors lowers the cost of capital of the "too big" firms. This yields a competitive advantage to these firms that encourages them to just keep growing bigger and to take bigger risks. Ultimately the moral hazard of To Big Too Fail is not addressed. Creditors to large firms need to realize the same risks as any other creditor in the market place.

We need a law that explicitly prevents the federal government from bailing out more firms. To prevent contagion, we may need an orderly way to divest the assets are still performing, even as the holding firm is bankrupt. Part of the problem is that in the chaos of a massive bankruptcy, assets cannot be properly valued to allow creditors to receive a just portion of the divested assets. Slowing this process may be necessary, it prevents a form of fraud for you libertarians, but I remain adamantly opposed to my taxpayers ponying up to prop up this process.

This is why I oppose this so-called reform, even though it continues to be incrementally improved, it does nothing to fix the underlying issues behind this crisis, in fact, the consumer protection agency looks like a way to double down on Fannie and Freddie foolishness.

The Nationalist Ideal

Nationalism has come in for a bad name in the history books. Hitler, Mussolini, and Napoleon are excoriated for the death and destruction wreaked in the name of nationalism. One might understand the left's aversion to all things nationalistic, especially since it is often associated with ethnocentrism and national purity. Indeed, Obama could not bring himself to wholeheartedly endorse the concept of American exceptionalism by saying “I believe in American exceptionalism — just as I suspect that the Brits believe in British exceptionalism and the Greeks believe in Greek exceptionalism.” Hardly a ringing endorsement. He betrays the leftist roots of his intellectual journey in that one remark. E. Thomas McClanahan cites numerous examples of how the left's aversion to identifying with the nation and its fight, indeed, feeling that they somehow operate in a moral plane above that of the nation results in euphemisms, because they can not bear to speak the words that show their heart is in the fight for our nation. Eric Holder can't admit that radical Islam is responsible for recent attacks. Janet Napolitano speaks of man-caused disasters not terrorism. In Obama's recent West Point speech, he trots out notions of collective security, lumping the war on whatever with global warming as a national security concern, except that he omits the word national.

As understandable as the left's instinctive aversion to nationalism might be, it is misplaced in the case of America. The notion of American nationalism is an ideal worth defending. We are a nation of nations, ironically enough, bound together not by the traditional fascist symbols of nationalism, race, ethnicity, or empire; but by ideals embodied in the greatest political documents ever written, the Declaration and the Constitution. The left sees our riches and feels guilt, assuming they are the result of plunder. In fact, they are the result of trade, invention and industry. We see historically that free societies that engage in trade were the richest. The ideals of individual liberty and responsibility, of tolerance for other religions, of democracy, of free markets have made this nation rich. These ideals, along with a belief in the supremacy of our armed forces' will to defend these ideals, form the basis of our nationalism. These are ideals worth defending. It is no coincidence that they are the very ideals for which we are attacked.

Abraham Lincoln laid out the meaning of the nation during the war he fought to save it.

Four score and seven years ago our fathers brought forth on this continent a new nation, conceived in liberty, and dedicated to the proposition that all men are created equal.

Now we are engaged in a great civil war, testing whether that nation, or any nation, so conceived and so dedicated, can long endure. We are met on a great battle-field of that war. We have come to dedicate a portion of that field, as a final resting place for those who here gave their lives that that nation might live. It is altogether fitting and proper that we should do this.

But, in a larger sense, we can not dedicate...we can not consecrate...we can not hallow this ground. The brave men, living and dead, who struggled here, have consecrated it, far above our poor power to add or detract. The world will little note, nor long remember what we say here, but it can never forget what they did here. It is for us the living, rather, to be dedicated here to the unfinished work which they who fought here have thus far so nobly advanced. It is rather for us to be here dedicated to the great task remaining before us—that from these honored dead we take increased devotion to that cause for which they gave the last full measure of devotion—that we here highly resolve that these dead shall not have died in vain—that this nation, under God, shall have a new birth of freedom—and that government of the people, by the people, for the people, shall not perish from the earth.

David Brooks Almost Gets It

David Brooks is a smart guy, but has a reputation of being a pseudo-conservative columnist. But he is still worth reading periodically because he can still provides occasionally brilliant insight. Consider this discussing a hypothetical and angry voter named Ben, who isn't tied to any political party (the whole article is worth a read):

For Ben, right and wrong is contained in the relationship between effort and reward. If people do not work but get rewarded, that’s wrong. If people work and do not get rewarded, that’s wrong. But Ben believed that America is fundamentally a just society. He loved his country because people who work hard can usually overcome whatever unfairness is thrust in their way.

But when Ben looked at Washington, he saw a political system that undermined the relationship between effort and reward. People in Washington spent money they didn’t have. They just borrowed it from the Chinese. People in Washington taxed those with responsible homes to bail out people who’d bought homes they couldn’t afford.

People in Congress were caught up in a spoils system in which money was taken from those who worked and given to those with connections. Money was taken from those who produced and used to bail out the reckless, who were supposedly too big to fail.

Brooks has captured the essence of the Tea Party with those paragraphs. But he can't bring himself to endorse the Tea Party itself after so eloquently portraying the dismay and disgust of average Americans for the current political mess. He somehow believes that sending Tea Party endorsed candidates to Washington will only exacerbate the current mess and that somehow, "centrists" who are passionate will solve the problem. What? In fact, only those who are passionate about the issues of debt and spending will make a dent and centrists, as well as liberals, have shown a deafness to those concerns over the years.

The passion is needed because there will always be pork barrel incentives. When people aren't paying attention to the big picture, they can be bribed with a few pieces of other people's money. But as the nation and electorate become more self-aware and mature, they realize that such a path is unsustainable. The result is a bi-partisan movement to reign the size of government, because it is its size that allows to be the affront to the values of Ben.

Updated Analysis on Employer-Sponsored Insurance

In a previous post, I opined that employers would not necessarily drop coverage of health insurance for employees despite weak mandates. I was responding to a column by W.C. who felt the weak mandates would have that result. I still think I am right, but not in the way I originally thought. It is very possible,even likely, that the structure of employment will be changed by Obmacare. John C. Goodman of the National Center for Policy Analysis has a very insightful piece in today's WSJ. What did I miss? I didn't understand the structure of the subsidies the government will pay lower wage earners to participate in the new exchanges.

The incentive become easier to understand, once you understand the subsidies. Bottom line:

In general, anyone with a family income of $80,000 or less will get a bigger subsidy in the exchange than the tax subsidy available at work.

The subsidies, explained in the previous post, have to do with the fact that no taxes are paid on the employer sponsored benefits. Given the subsidies under Obamacare, employers of people making less than the $80,000 are better off letting those folks go on the government exchange. However the law requires no discrimination in the offering of health coverage. So what's a profit seeking CEO to do? It makes very good sense for the bottom line to restructure the employment situation, so that workers at the lower end of the wage scale get outsourced as contractors to companies that do not provide the health insurance benefit.

Take a hotel with maids, waitresses, busboys and custodians all earning $10 or $15 an hour. These employees can qualify for completely free Medicaid coverage or highly subsidized insurance in the exchange.

So the ideal arrangement is for the hotel to fire the lower-paid employees—simply cutting their plans is not an option since federal law requires nondiscrimination in offering health benefits—and contract for their labor from firms that employ them but pay fines instead of providing health insurance. The hotel could then provide health insurance for all the remaining, higher-paid employees.

Ultimately, we could see a complete restructuring of American industry, with firms dissolving and emerging based on government subsidies.

BTW, I have a little experience with this personally. I am a manager in the federal government. A little over half of my work force consists of contractor employees. Many of them are in the very lowest paid, basic positions in my organization. This keeps my budget down, because I know that the contractor pays very little in the way of health benefits to its employees, especially when compared to the benefits paid by the federal government. It makes no sense to fill those positions with government employees. I find that as I move up the salary scale, the health and other benefits tend to equalize, but contractor profit starts to dominate. So for the middle tier employees, I have more of a government work force. Then at the high end, I find that I cannot pay some of the most experienced, technically qualified employees enough, because of government salary caps, so those employees tend to be contractors again.

Despite the Democrats supposed dedication to helping the lower wage earners, they are actually hurting them, because the government exchanges are unlikely to provide the quality of coverage that employers do. Ironically, the end result of Obamacare may be an exacerbation of a have vs. have-not situation.

Definitely read the whole article, there are also good points about emergency rooms and the shortage of doctors.

P.S.
W.C. also has some local dirt about what's going on at Qualcomm in response to Obmacare. Too many reports from corporate America are trickling not to believe that huge swaths of the public are going to lose their employer coverage.

Weekend Music Chill

The strength of the convictions and ideas of the Tea Party were starting to be felt in elections this week. Even the Democrat who won in Pennsylvania sounded like a Tea Party candidate. I wanted to reprise Sarah's amazing video to remind us in California to keep up the fight, plus I love this tune.

California Tax Day Tea Party from Lipstick Underground on Vimeo.

By the way, The Knowledge Czar, (H/T Left Coast Rebel) has a nice piece about the libertarian stylings of Matt Bellamy of Muse.

I Can't Draw

So I uploaded some images instead.

All of these images have a few things in common. They were rendered by artists who had a respect for and belief in the religious figures shown. They are products of the time and culture which produced them. They bear no resemblance whatsoever to any known historically accurate representation of the individual pictured.

Those in the Muslim world who threaten violence over depictions of Mohammed are loony for threatening the violence in the first place. But more fundamentally, they are wrong to be offended at all, because no one can say what Mohammed looked like in the first place. One could make a stick figure and call it Mohammed, but so what? What is the point in any outrage. Further, the picture of Mohammed provided for this article, I will leave it to you to decide, was painted by a devout adherent to that religion, centuries ago. Muslims are sadly misreading their own traditions to take offense at all.

On a personal note, I believe firmly in freedom of speech, so I defend the right of cartoonists and South Park to portray religious figures any way they want. However, I feel that I should personnally respect people's religious beliefs, because, only in that way, can I fulfill the great commission that I believe I have been given.

Pennsylvania Party Switchers

Pennsylvania is now famous for having defeated Arlen Specter in the Democrat primary, after his switch to the Democrat party from nominal Republicanness in 2009. It seems that there is another case of party identity blurring in the one dark spot on yesterday's results. In the PA-12 special election to fill John Murtha's vacant seat, the Democrat, Mark Critz, won in a race the Republicans thought they could win.

So how did he do it? Here is analysis from the Christian Science Monitor:

The model, as followed by now Rep.-elect Mark Critz (D) of Pennsylvania, goes like this: Keep it local, not national. Don’t even talk about President Obama and House Speaker Nancy Pelosi. Define your opponent early and often, as negatively as possible. Hold positions that match the views of your district – in Mr. Critz’s case, it meant being anti-abortion and pro-gun. It also meant opposing the just-passed health-care reform (though Critz adds that he would not repeal it) and the climate change “cap and trade” bill.

So let me get this straight, to win as a Democrat you have to oppose Obamacare, cap and trade, abortion and support gun rights? How does that differ from say, Chuck DeVore, a solid conservative Republican? This is a recipe for victory in November? If so, bring it on. If the Congress was filled with Democrats who truly held those views, the country would be better for it. But we all know that Critz, a former aide to one of the most corrupt Congressmen in history, is lying. Look at Stupak, ok you don't have to, literally. When push comes to shove, all these supposedly pro-life Democrats cut and run and vote with Nancy Pelosi to pass whatever Obamanation the Dems are pushing and sell out on their supposed pro-life principles.

Further, expect more of the same pork-barrel style politics from Critz:

Critz was an aide to Murtha, so while he had the Washington-insider thing going (bad) he was also able to draw on his connection to Murtha (good) and has promised to keep federal money flowing into the district.

The good news is mixed with the bad news. Democrats recognize the need to act like Republicans to win, but enough people are fooled that this works.

Breaking out the Bubbly

Broke out the bubbly tonight, pictured at left, to celebrate. Rand Paul won the Kentucky Republican primary and had this to say:

"I have a message from the tea party," he told several hundred supporters at a country club in this western Kentucky town where he lives. "A message that is loud and clear and does not mince words. We've come to take our government back."

Amen, brother. Skip to 1:30 to hear Rand Paul get going, he delivers the Tea Party message very well, much of what the SLOBs have been saying all along.



Meanwhile in Pennsylvania, that self serving turn coat, party of one, Arlen Specter, has gone down to defeat in the primary to Joe Sestak. By the way, I have no love of Mr., formerly Vice Admiral, Sestak, retired as Rear Admiral, BTW. The guy was notorious for treating people badly while in the Navy, CDR Salamander has all the dirt on him. Hopefully, some of this will be useful in the general election.

Chuck DeVore for Senate

CK MacLeod at Zombie Contentions and HotAir has called on Chuck DeVore to withdraw from the California Senate Republican primary to replace Barbara Boxer. His contention is that Carly Fiorina will lose to Tom Campbell otherwise. My response, so what? Explain to me exactly how Carly has so endeared herself to the Tea Party movement or is so much better than Campbell that I should care. Further, Carly seems willing to cast principle aside in the tactics she uses to try to push Chuck out of the race.

Right now, in the primaries, is the time to make our voices heard. Incumbents and wannabes of both parties need to start getting the message that THE TIME FOR BUSINESS AS USUAL IS OVER! Sorry to shout, but the nation is in a fiscal crisis without historic parallel. No previous record indebtedness of the nation was caused by such willful political malpractice of running up debt by increasing entitlements and spending on federal salaries and contracts. The crisis is primarily moral and political, so I am unwilling to compromise in the primary election season, when I am given a choice to vote for a true conservative who is dedicated to smaller government.

In Utah, Bob Bennett lost the GOP nomination. Rand Paul seems set to upset the Kentucky Republican establishment tomorrow. Turncoat, and former lefty Republican Arlen Specter may go down tomorrow as well. It's a peaceful revolution, but a revolution none the less. The future of our nation demands that we draw a line and say No More!

Now, if the worst should happen in June, and Tom Campbell is the nominee, I will in all likelihood still vote for him over Boxer. He might even win, although I doubt it, given the enthusiasm gap he will have. I will do so because Barbara Boxer has supported every lefty spending program that has ever come along, and Campbell occasionally shows restraint.

But for now, I am still pulling for Chuck DeVore, so mosey on over and make a donation. I did.

P.S. Sorry about the short hiatus from regular posts. I spent some quality time with my church group in the mountains this weekend. I also had some responsibilities getting it organized. We talked a bit about the role of men in the family and work. Pretty inspiring stuff.

P.P.S. Really sorry I missed the first Beer Summit, more reportage on that from BwD.

Weekend Music Chill

This weekend's music is for Mrs. Daddy who's had this song in her head.

Targeting U.S. Citizens

The Obama administration is certainly winning no friends on the left with the news that a radical Muslim cleric, Anwar al-Awlaki, born in New Mexico has been added to the CIA hit list. But just because the left is unhappy, it doesn't mean conservatives should cheer. From the NYT article:

Administration officials take the view that no legal or constitutional rights can protect Mr. Awlaki, a charismatic preacher who has said it is a religious duty to attack the United States and who the C.I.A. believes is actively plotting violence. The attempted bombing of Times Square on May 1 is the latest of more than a dozen terrorist plots in the West that investigators believe were inspired in part by Mr. Awlaki’s rhetoric.

“American citizenship doesn’t give you carte blanche to wage war against your own country,” said a counterterrorism official who discussed the classified program on condition of anonymity. “If you cast your lot with its enemies, you may well share their fate.”

Seems fair enough, right, you engage in war against the United States and your "rights" are not protected, because, hey we're at war. But are we really? Consider this:

Section 8 - Powers of Congress
...
To declare War, grant Letters of Marque and Reprisal, and make Rules concerning Captures on Land and Water;

So, when did the Congress of the United States declare war on al-Qaeda? Never, to my recollection. Without a formal declaration of war that specifically calls out the theater of operations and the nation or group with whom we are at war; what are the constitutional limits on targeting U.S. citizens? None. Further, even if this cleric is engaged in anti-American rhetoric, targeting someone for assassination far from the actual war zones seems extra-legal and without constitutional precedent. As always, my concern is over reach and the potential for targeting of U.S. citizens for far lesser offenses, like criticizing Obamacare while in a foreign country. Any legal doctrine that ascribes powers to the President outside the lawful and constitutional framework essentially ascribes unlimited powers in that area. This is why the founders made clear the need to declare war before the President, as commander-in-chief of the armed forces, could wage war.

How do we deal with such an individual? Certainly he is committing treason by his statements and actions. We should seek extradition from Yemen, and since that might not be forthcoming, then perhaps those Letters of Marque and Reprisal might have a salutary effect.

A Legal Theory of Fences

Robert Frost is famously quoted from his poem "Mending Wall" that good fences make good neighbors. I have also read that the statement is intended to be ironic, but maybe he was just right.

Listening to some of the argument over the Arizona law reminded me of a legal theory that I always found appalling, but more understandable as I grew older, the theory of "attractive nuisance."

Attractive nuisance is a defense to trespass by children used in tort law. The doctrine of attractive nuisance is premised on the belief that one who maintains a dangerous condition which is likely to attract children on their property is under a duty to post a warning or take affirmative action to protect children from the dangers of that attraction. It imposes a duty to be sensitive to potentially dangerous conditions which are likely to attract children. The attractive nuisance doctrine typically doesn't apply to adults. However, if a child is in danger due to an attractive nuisance and an adult attempts to rescue the child, the attractive nuisance doctrine may hold the landowner responsible for the rescuer's injuries in addition to the child's injuries.

Those who argue against the Arizona law often do so with an unconscious mental picture of attractive nuisance. Their argument says something like this. Since the U.S. did not enforce its borders and furthermore, and since some U.S. employers employed illegal aliens, we shouldn't punish them for coming here to work. After all its our own fault. You can see the similarity to the legal doctrine quoted above. The problem is that the theory applies to children. Which is exactly how the average lefty views the populace as a whole.

Regardless, those so arguing wouldn't object to building a real fence that ended the nuisance would they? Saving the lives of illegal immigrants crossing the desert is certainly the right thing to do? See how far that gets you with the left.

Programming note: Blogging will be light for the week.

Planet Bailout

Today's Drudge Report "mini-headlines" looked approximately like this:













Without linking to the articles, it is clear we are leaving Bailout Nation and entering Planet Bailout. The U.S. involvement in this global stupidity is growing, quickly erasing any schadenfreude I might have been nursing after watching Greek communists in action. In the what could go wrong category, consider this AP headline:

Federal Reserve opens credit line to Europe

WASHINGTON – The Federal Reserve late Sunday opened a program to ship U.S. dollars to Europe in a move to head off a broader financial crisis on the continent.

Other central banks, including the Bank of Canada, the Bank of England, the European Central Bank, the Swiss National Bank and the Bank of Japan also are involved in the dollar swap effort.

Hey, that's our money. Who gave the Fed the authority to do that?

Meanwhile, the marginal tax rate for the middle class hovers around 40%. Interesting reading here and here on the perverse effects of our marginal tax rates. And the Democrats are set to increase taxes on dividends and capital gains. It's hard enough for the average person to save money as it is, because the average middle income earner loses 40 cents on every new dollar they make. Over the last century, investing in stocks was the best way to increase wealth, but Obama and the Democrats want to make that harder as well.

With ballooning deficits and an apparent commitment to bail out the entire world, no wonder the Tea in Tea Party stands for Taxed Enough Already. Reversing the mushrooming size of government and the idea that handing out dollops of cash will willy-nilly will solve any problem is the signature issue of the Tea Party. We must keep up this fight, because the latest actions of an unaccountable Federal Reserve show how much danger we are in.

Just keep in mind that this is the ultimate destination for your hard earned dollars when the fed ships it to Europe:




Might as well light our dollars on fire here, and save the expense of sending them to Greece.

Happy Mother's Day

Happy Mother's Day to the moms out there. I am blessed with a loving Mom who always wanted the best for me and had high expectations. I didn't realize until much later in life how important that was. I also married well; my Mum-in-law is wonderful to me and has been the sweetest, nicest mother-in-law I could have imagined; unlike the stereotypes. Mrs. Daddy is also a sweetheart, a real love, whose heart is fierce with love for her children. I am truly blessed. Light blogging today, as we are making it special for the moms in our lives.

Tea Party Victory in Utah

HotAir is reporting the defeat of Senator Bob Bennett of Utah in his quest to be re-nominated by the Republican party as a victory for the Tea Party. Bennett came in third at the party convention and because the top candidate did not garner 60%, there will be a Republican primary. Certainly, he had not made Tea Partyers happy with his support for TARP bailouts. From a pre-convention article in the Christian Science Monitor, on his possible ouster:

Though Bennett has well-established conservative credentials (he supports gun rights and favors tighter immigration controls), many tea partyers, as well as the antitax group the Club for Growth that is campaigning against Bennett, cite his 2008 vote in favor of the Troubled Asset Relief Program (TARP) bank bailout as the thing that put him on the wrong side of their movement.

Bennett also got in the cross hairs of the Club for Growth, an organization that some in the Tea Party movement seem to distrust over immigration issues. (Welcome to politics, neophytes, where you might find your bedfellows to be strange.) Also from the same pre-convention article:

"There are a lot of unhappy delegates," says Kirkham, who, like about 70 percent of the delegates this year, will attend the convention for the first time. Many of the newcomers have been chosen by their neighborhood precincts specifically for their anti-Bennett stance, he says, as well as their tea party credentials. According to a Salt Lake Tribune poll, 68 percent of delegates say they are tea party supporters.

This is great news, for the Tea Party. Putting the fiscally irresponsible on notice that there is a price to be paid for spending other people's money is the only way we will make progress in digging out of the hole that Obama and to a lesser extent George Bush, have put us in.

But there is much hard work ahead. Bennett may launch an independent bid, like Charlie Crist in Florida. Exit question, if dumping fiscally liberal Republicans results in the election of fiscally liberal Democrats, are we making forward progress?

Military Justice - Third Seal Acquitted

Military justice is sometimes referred to as an oxymoron. However, I can tell you from personal experience that this not so. For the most part, commanders take seriously the need for impartiality and fairness in their proceedings, even during Captain's mast or Article 15, where the rules of evidence are considerably looser than in a Courts Martial. Further, there are many circumstances under which an accused sailor, soldier or Marine can decline Article 15 proceedings and ask for a court martial. This further protects the military member from a biased outcome.

This week the strength of this system was again confirmed when Petty Officer Second Class Matthew McCabe was acquitted for allegedly roughing up a prisoner, the notorious Ahmed Hashim Abed, who had masterminded assassinations of American private security guards in Iraq. P.O. McCabe made the good decision in this case to accept court martial in lieu of Captain's Mast (Article 15), because the convening authority, Lt Gen Charles Cleveland appeared to hold some biases. Now, all three seals that were charged have been acquitted.

Video from McCabe here. Embed fixed, video folows:



I would also add that even though he was acquitted, P.O. McCabe has suffered through an ordeal. He had the real chance of going to jail; his career was definitely interrupted, and his reputation was damaged by the comments of his commanding general, who presumed him guilty. I hope that he is able to resume his career.

Economic Calculus for Employer Provided Health Insurance

W.C. points out that some big companies are contemplating dropping their health coverage to save dollars. The weak mandates are blamed as the culprit. But a little analysis reveals that this is only part of the equation.

The linked article uses AT&T as an example of how a large company could save money by dropping coverage.

Looking at the chart, at first glance it looks like AT&T could save a cool $1.8 billion by dropping coverage for employees, because the mandate penalty is only $600 million for their 283,000 employees. But here is the fallacy; before Obamacare passed, they could have saved even more by dropping coverage for all employees, $2.4 billion. So the weak mandate can't be the whole story, because they could have dropped coverage any time before. So why now? It must be speculation that the government subsidies to buy insurance in the new exchanges will be high enough that their employees won't quit over the issue of dropped coverage. So the amount that government is subsidizing insurance and the quality of that coverage, as perceived by the employees, becomes the key issue to be analyzed.

Why did AT&T provided coverage in the first place? Out of the goodness of their collective hearts? I know better. Rounding the figures to make the math easier, (this is a blog, not schrool after all) we see that AT&T spent about $10,000 per employee on health insurance in 2009. But the value to the employee far exceeded that amount, because it was not taxed, either through payroll (i.e. social security) taxes nor through income tax, state or federal. Using a 25% federal rate, 15% payroll tax, and nominal 5% for state tax (YMMV) yields a total tax rate of 45% that was avoided on that $10,000 benefit. (By the way, where does the left get off saying we don't pay much in taxes, 45%, that's a lot.) If the employee had to spend his/her own after tax dollars on health care, their employer would need to increase their total pay package to $18,000 (rounding) in order for the employee to have $10,000 to purchase the same policy. The $8000 difference is a give back in the form of taxes.*

The tax code is the big driver pushing employers to provide health insurance as a benefit; it allows them to provided an $18,000 benefit for $10,000 in this case. So how will the government insurance exchanges work? Who knows? I think it is obvious from this example above that if the exchanges are to come close to matching the benefits provided by employers, they will have to heavily subsidize the exchange, further bloating the deficit. However, is a 40% subsidy realistic? How would employees react if they were given back some of the money spent on health insurance but found that the exchanges were much more expensive?

I don't think we will see a big move by firms that already provide health coverage to expand drop the coverage, because I don't see the exchanges competing effectively either on price, because of the tax advantage, or on quality, because they will be run by the government. They might actually attract a lot of people who have pre-existing conditions, so their costs are probably underestimated. But can't we say that about any government program.

The retirees are a whole other matter, but I lack the knowledge to comment yet.

*Using a calculator the numbers look like this:
$ 8480 = average amount AT&T spends per employee on health insurance.
$15419 = average increase in pay package if employee purchased identical policy with after tax dollars.

Weekend Music Chill

Gordon Brown reportedly caught a few winks this morning while the results of the British election sorted themselves out. He has been sending out signals that he does not intend to resign as prime minister any time soon, despite badly trailing the Tories in parliament seats, 305 to 289. Unfortunately for David Cameron, his party lacks an overall majority, so this gives Gordo a slim opening to negotiate with the Lib Dems to form a minority government. To do so would probably destroy the rising credibility of the Lib Dems as a force in British politics, a coalition of losers governing the country seems unpalatable to everyone except the Labor PM. So this song is dedicated to Gordon Brown, for so many reasons, not the least of which is that he may be the last Labour MP to realize its time to go.

About That Third Party

I have seen some discussions about conditions being favorable for a third party in the United States to rise up and challenge the Democrats and Republicans. Much is made of the rise of Nick Clegg and Britain's perennial third place finishers, the Liberal Democrats. Miscues by the Tories and Labour's Gordon Brown, who famously called a long time Labour party voter bigoted, would seem to have put the wind at the back of Mr. Clegg, who performed well in televised debates. Additionally, references are made to Ross Perot, and his self financed campaign that garnered just under one fifth of the vote in 1992 and may have cost George Bush the election.

However, I think the results that are coming in from Britain, and Mr. Perot's efforts show what an uphill battle it is for a third party to make enough in roads to be more than a bit player. The Lib Dems seem set to place a distant third in these elections despite polling very close to 27% of the popular vote in the run up to the elections. They may yet be part of a coalition formed by the Conservatives, but if so, will be a very junior partner.

What is the lesson? I think that the Tea Party can be very effective at driving the direction of the debate and adding energy to politics, but forming an independent political party actually fritters away our strength. By shaping primaries and forcing politicians to cater to our concerns, we have more influence than through actually electing candidates. I think Sarah Palin has missed the boat on this by endorsing Carly Fiorina. We should use our influence to move all politicians in our direction. I know that Temple of Mut is disappointed by Sarah's endorsements. But when the general election comes around we need to unseat liberal Democrats, even with moderate Republicans. Look at how Nancy Pelosi passed Obamacare with Blue Dog votes. I think fears that Carly won't be Republican enough if she wins the nomination aren't well founded.

Click here to stay up to date with electoral returns from "across the pond."

Quote of the Week

Comes from Dean at BwD, commenting on the confluence of racialism, radicalism and re-distributionism from the likes of La Raza:

However, the larger backdrop is a set of people who through racial guilt, intimidation and victimization are waging a war of "social justice" against those who hold dear the rule of law, property rights, freedom of speech and a belief that this country is not great because of its diversity but rather this country is diverse because of its greatness.

Thanks Dean, for putting it in perspective. I tend to be a little tone deaf to the political undercurrents of cultural phenomena, so I have mostly ignored controversies like the kids kicked out of school for wearing American flags on Cinco de Mayo (which Dean also skewers.) I prefer to examine issues through the lenses of economics, constitutionality and law. But the cultural phenomena are important, because they are symbols of a broader struggle and capture the public attention and imagination in ways that pure policy discussions do not.

A couple of asides on this controversy. First, I thought kids were supposed to go to school to learn. What the heck kind of dress code allows display of any logos? My youngest son's school has a dress for success code that bans all logos, advertising, of all varieties. That school should prepare students for participation in the work force is a key theory of the school's director. He has a PhD in education, but displays heaps of common sense anyway.

Second, the fuss seems a little overblown. If one school out of hundreds of thousands has a problem on Cinco de Mayo, considering all of the current controversy over illegal immigration, then we're actually doing pretty well. Kudos to the school board, who didn't back the vice principal on this one as well. One guy made a mistake, let's all move along. A statement from the district:

The district does not concur with the Live Oak High School administration's interpretation of either board or district policy related to these actions.

Exactly, if you can wear a Mexican flag, you can wear an American one. Stupid policies have to be content neutral in this great land of ours. Just one more reason to shut down the public school system and fully privatize the provisioning of education.

There Is Still A Difference

Mark Steyn had this to say about the incident in Quincy video'd above:

The same day that Mayor Newsom took his bold stand, I saw a phalanx of police officers doing the full Robocop — black body armor, helmets, and visors — as they marched down the street. Goosestepping? No, it’s actually quite hard to goosestep in those steel-reinforced kneepads. So just regular marching. Naturally, I assumed they were Arizona state troopers performing a routine traffic stop. In fact, they were the police department of Quincy, Ill., facing down a group of genial tea-party grandmas in sun hats and American-flag T-shirts. They were acting at the behest of President Obama’s Secret Service, who rightly recognized a polite knot of citizens singing “God Bless America” as a clear and present danger to the republic.

If I were a member of the Quincy PD, I’d wear a full-face visor, too, because I wouldn’t be able to look myself in the mirror. It’s a tough job making yourself a paramilitary laughingstock.

And there in lies the difference. In the U.S. peaceful demonstrators can still embarrass jack booted paramilitary types into backing down. We know how things ended in China. (No para about those military tanks in Tiananmen Square.)

Times Square Bomber and the Constitution

I have seen some commentary on the right stating that the Times Square Bomber should be handed over to a military tribunal. John McCain, most prominently, seemed to be saying that the suspect, Faisal Shahzad, shouldn't have been given his Miranda rights. The linked article suggests a similarity with the Christmas day bomber, Umar Farouk Abdulmutallab. This is a dangerous road for conservatives to take. Through incompetence or not, Shahzad was a U.S. citizen, who committed his crime on U.S. soil. In my view, this makes the issue a police matter, even if there are international connections. A treason charge wouldn't change his legal status and might be appropriate, but the constitution is clear that until convicted of treason, the suspect loses no rights.

The first danger from this approach is that it undermines pretty decent arguments for military tribunals for foreigners we capture as part of the war on terror, or whatever we are calling it. Conservatives will be seen as willing to suspend the rights of anyone and feed the suspicion of the some that we are closet fascists. We need to clearly make the case that foreigners lack the rights that U.S. citizens retain, in order to maintain public support for a realistic approach against foreign fighters. By lumping all categories of terrorists together, we actually tie the hands of our military overseas, because legal issues become overwhelmingly intrusive on the battlefield.

Even more importantly, we must respect constitutional safeguards if we are to remain a free people. As Glen Beck pointed out last night, the Constitution matters most when it is most inconvenient. Imagine for a moment that you attended a rally that called for the repeal of Obamacare and generally lambasted government excess in general. Of course, a couple of kooks might show up, LaRouche followers perhaps; who start advocating the violent overthrow of the government, in some sort of black hat op. If you were rounded up by the police and charged with terrorism, just because you were there, wouldn't want your rights of habeas corpus, Miranda, and to an attorney to be respected? Our constitutionals rights form a bulwark against tyranny that is perhaps more fragile than we believe.

Conservatives have been sloppy over the last decade on this issue. Even though I supported the military tribunal process while Bush was President, I did not support his extra-legal approach, abrogating powers not granted to him by law or the constitution. Same for foreign wire tapping; I support the effort, if codified into law and given judicial oversight. Our case for our methods are undermined if we fail to support the rule of law and conformance to the constitution. One of the strengths of argument we have against the over reach of the current administration is our adherence to constitutional principles. Let's not fritter away that strength. Go ahead and Mirandize Shahzad.

Addition to post: Volokh Conspiracy, as usual, has a decent legal analysis of the issue. I am kicking myself for not reading it first. They make the great point that the FBI did not need to Mirandize the suspect under the public safety exception if they needed to get further information about other plots.

Greek Solution - UPDATE

This so obvious, that it won't happen, but I can't believe it took me until today to figure it out. The whole reason for the crisis is that the Greeks can't slowly default by monetizing their debt (i.e. devaluing their currency thereby inducing inflation) the traditional deadbeat and third world way out of this kind of jam. This is because they use the euro as their currency and can't print more. Further, their deficit and debt ratios exceed the thresholds imposed by the treaty that admitted them to the union. Since they lied about their finances, violating the treaty, the EU should just expel them. Then they can do whatever they like. Since that will also put them outside the EU, it will also staunch the bleeding in the EU markets. Further, it will have a salutary effect on any other member nations not getting their act together.

Of course, this won't happen, because the whole world has adopted the paradigm of TBTF.

UPDATE

The Wall Street Journal, (the nation's real newspaper of record, IMHO) addresses the difficulties of my plan. But at least it shows that it is being considered.

From a legal perspective, there is no mechanism to force a country out of the currency area, European Central Bank legal counsel Phoebus Athanassiou argued in a December 2009 working paper. And while the Lisbon Treaty introduced a means for states voluntarily to withdraw from the European Union, it was silent on leaving the euro. Ultimately, that means the only way a country could leave the euro would be to quit the EU, too, according to Mr. Athanassiou. That raises the stakes far higher, since it would affect the rights and obligations of citizens and companies.

Practically, too, leaving the euro would be extremely difficult. Beyond the huge logistical problems in introducing a new currency and untangling the national central bank from the Euro system, a euro exit followed by a devaluation would likely leave a country with a mountain of unserviceable euro-denominated debt, leading to major legal wrangles, mass personal bankruptcies and huge losses for creditors.

Doesn't change my position, but it does show what it would take. Exit question, will the Greeks themselves decide this their best option?

Stupid Headline of the Week

This one is too easy:

Euro market meltdown resumes despite Greek deal

How about because of the Greek bailout? How about what did you expect? The Greeks have shown neither the willingness nor the ability to figure out how to deal with their debts and structural deficit. That 110 billion euro promised? Might as well flush it. And the reason the euro market is melting down? Clearly more bailouts are on the way; in for a dime, in for a euro.

The reporting in the linked headlines isn't near as bad as the editorial writing that came up with the headline. Some tidbits:

In Athens, striking public workers challenged Greece's 110 billion euro ($146.5 billion) bailout-for-austerity deal, starting a 48-hour national strike that shut down ministries, tax offices, schools, hospitals and public services.

While I can get behind the whole tax office shut down; you have to ask yourselves, are these people insane? Where do those public workers think their salaries come from? I guess they don't think. Further, just because there was a bailout, don't think default isn't in the cards anyway. Look who's been signed on to help the Greeks:

News that Greece has appointed debt restructuring specialists Lazard to provide "general financial advice" fueled speculation that some form of orderly rescheduling or payment moratorium may be likely, despite vehement official denials.

Finance Minister George Papaconstantinou told Reuters after news of the Lazard hire: "Any form of debt restructuring is out of the question."

The denials are certainly convincing to me.

And if you thought this was an amusing little comeuppance for uppity euro-trash socialists, guess who's also footing the bill. From W.C.'s column today, quoting John Mauldin of Investor's Insight:

Let me start this week's Outside the Box by venting a little anger. It now looks like almost 30% of the Greek financing will come from the IMF, rather than just a small portion. And since 40% of the IMF is funded by US taxpayers, and that debt will be JUNIOR to current bond holders (if the rumors are true) I can't tell you how outraged that makes me.

To quote W.C., welcome to bailout planet baby.

Here is the picture accompanying the article:


Exit question, why a sign in English and why the commie hammer and sickle? OK that's two questions, but somebody help me out.

Making it Worse in Greece

KT has two updates, here and here, on the Greek bailout situation. Greek unions' violent protests cut off tourists from their hotels. KT points out that one of Greece' main economic pillars is tourism. He also points out the inevitable failure of the bailout as the the Greeks haven't really shown the will to make the changes needed to mend their balance sheets. Further, they've been lying so long, who knows if the approximately $150 billion will be enough.

Tim Cavanaugh at Reason Hit & Run, shows how the bailout is already making things worse. A few of the juicier quotes:

Second, while German Chancellor Angela Merkel is taking credit for bringing in International Monetary Fund support and forcing some tougher fiscal-cleanup conditions on Greece, the bailout does not address the counterproductive elements in Greece's own so-called austerity package, including currency controls and cash-transaction limitations that will only slow the country's economy.
...
Fifth, Marshall's [an Asset Manager] doubts are well founded. As they have shown throughout this crisis, Greece's strong and ancient socialist institutions can only respond to market discipline with violence.

Compare this video of lefty Greek protests with any Tea Party event:

Government Monopoly or Private Monopoly - Updated

One of the implicit argument being made by Democrats is that if we're going to have monopoly or heavy regulation over the delivery of a service, then government might as well deliver it, because it will be cheaper and not tainted by evil profits. This has been applied to the take over of student loans and is also implicit in the argument for "single payer" health insurance. Never mind that we could pay for the nation's health bill for about two days on the profits from insurers. However, a personal experience of my wife's brings home the fallacy of this argument. Before reading the rest of this post, you might want to check the background at B-Daddy's Other Blog about Mrs. Daddy's horrible encounter.

We deal with any number of private monopolies in our every day lives, and while they aren't particularly responsive or innovative, they never seem to raise the bar for contempt of their customers the way the DMV and various branches of the City government seem to. My power company is SDG&E. When I had an issue with a gas main, they were very helpful in sending someone out to check it. They encourage energy savings with rebates and seem genuinely happy to answer my calls. My cable provider, no longer quite fits the category of monopoly, with competition from DSL and satellite, but even when they were, they were helpful in setting up new services and repairs.

Meanwhile the bureaucracy of city government just seems to delight in making our life harder with every encounter. Whether it's the inspector for my pool, telling me something that I later proved was false, or the inability to provide a garbage can in a reasonable manner, or heaven forbid if you don't follow just the right procedures at the DMV.

So this is why I absolutely recommend voting against a guy like Steve Hadley in the District 6 election. If you think that government can deliver services to citizens/customers better than the private sector, you need more trips to the DMV.

UPDATE:

Fortuitously, Richard Rider has a story about a bizarre encounter at the post office in Oceanside that only reinforces my point. Rider was trying to get some information about what would happen if he dropped his tax return after 8:30 p.m.. (Even if UPS were a monopoly, I would never expect them to act in the manner described.) Some excerpts:

The first guy I spoke to outside almost immediately went postal on me – in that he was openly hostile, derisive and bullying. He would not allow me to say more than five words at a time.

He proudly announced he was a shop steward and waved his badge in my face. You could see why he was elected steward – he was a bantam rooster, only not quite as bright.

Rider makes the point at the end of the article that this behavior has not been the norm when dealing with postal employees, but even so, in the private sector, anyone who was so combative with a customer would probably lose their job.

Illegal Immigration Incentives

An anonymous commenter got me thinking about further analyzing the illegal immigration situation in term of the incentives of the different players. First the comment was in response to a complaint I had about the health care bill.

>"For example, on health care, wouldn't it have been good enough to just subsidize the lower income brackets to purchase health care and guarantee portability so that pre-existing conditions can be covered? " (from my post) Of course it would, but when was the last time you saw someone elected on such a platform? Either you are for radical reform, or you are against any reform. Pick your team. The blue team loves big government, The red team loves big business. Who loves the little guy?

That's exactly the point of the Tea Party, to bring the pain of the average American taxpaying, crime-wave suffering schlub to the attention of the politicians and put them on notice that they can ignore us no more. With respect to immigration, the incentives to the key players are working against reform. A quick look (by the way, I will oversimplify by assuming that most illegal immigrants are from Latin America who cross into the U.S. southern border, that is often the case, but not the whole problem, more on that some other day.)

Employers of Illegals.
This one is obvious. These guys get workers, often below minimum wage, and certainly for wages that are unattractive to native Americans.




The Hispanic Community.
You would think that since the illegals often compete for jobs held by legal residents in this community, they wouldn't be rallying, but they are? This is an issue of identity politics. Further, I think their is a belief that if the large numbers of current violators are granted amnesty, it will swell their numbers and make them more important politically. Certainly, that is the belief of some Latino politicians and "community organizers." As a result, this community is not in favor of closing the border. They are aware that the deportation of 11 million people isn't happening any time soon.

Democrat Party.
There is a parallel argument that Democrats benefit politically from this issue, and that doing nothing helps them. First, it gives them an excuse to play the race card. Second, they can woo the Hispanic vote without actually doing anything about the problem, blaming Republicans for the lack of progress. However, some in the Latino community are beginning to notice, if you read some "man in the street" interviews from yesterday's protests. Democrats prefer to demagogue rather than offer solutions, because they know that if they keep their amnesty promise, they will really energize the opposition. This is why Obama said earlier that nothing was happening without Republican cover. Enter Lindsey Graham.

Republican Party.
The incentive for them is not to lose votes. They are playing an entirely defensive game, remembering what they perceive as Pete Wilson's disastrous efforts in the 1990's to deny illegal immigrants state benefits that was widely viewed as racist and turned the Latino vote in California decidedly Democrat ever since. (You can argue if this should have been the outcome, but those are the facts.) Even though their base wants them to do something, they dither because of fear of losing votes nationwid and possibly the harm to the businesses employing illegals. (I have no hard evidence on the latter.)

Unions.
OK, I admit to being stumped on this one at first. The unions, if they were really looking after the interests of their members, should be the one's making the loudest demands to halt the flow of illegal immigrants, because they put downward pressure on wages. However, unions have long since abandoned any pretense at actually representing their members true long term interests. Second, I don't see illegal immigrants working in unionized industries. Most union members work for a branch of the government, where citizenship is usually a prerequisite and the other unionized private sectors (transportation, utilities, telecommunications, groceries, construction) don't have a big illegal presence. More importantly, I think the union leadership has a flat out socialist agenda. Swelling the voter rolls with low wage, relatively uneducated workers advances their agenda of moving forward with a left wing/socialist agenda. (This applies to the Democrat Party as well.)

Consumers.
Let's face facts, some of the benefits of low wages paid to illegals are passed along to consumers in the form of lower prices for goods and services. Restaurant prices, landscaping costs, minor construction and repairs on your house all come to mind. I don't think the general public is totally focused on this fact, but I think it makes people feel a little guilty and helps people buy into the notion a crack down is somehow unfair, because they know they are contributors in some sense. (Yes, this is a broad generalization.)



But the big losers are the Rule of Law and the portion of the population that lives along the border and suffers from the attendant lawlessness. This is why it is Arizona is the state dealing with the problem first. From a benefit/cost aspect, they are probably the biggest losers as the border fence in California drove the immigrants eastward, and Arizona's relatively smaller population means that they don't derive much benefit. Further, the crime wave from the concomitant increase in drug smuggling through Arizona has motivated the public to demand some action. The damage to the rule of law should not be underestimated. Society is much more fragile than we imagine, depending on a broad set of shared agreements about the nature of justice and the relationship between the governed and the government. The alienation Peggy Noonan wrote of yesterday is only exacerbated by the conscious undermining of the rule of law by the administrations of both parties. For this reason, I agree with her that an increased effort to enforce the border is absolutely required. The government must show good faith to the people in restoring a sense of justice and the rule of law. But it will not be enough and as one can see from the incentives of key players, a coalition that brokers a deal will be needed to put this issue to rest completely.

And let's not forget the real casualties in the assault on the rule of law:

Rob Krentz was a lifelong rancher in Southeastern Arizona, 12 miles north of the U.S./Mexico border and 25 miles northeast of the city of Douglas. He was the father of three children. The ranch has been in his family for three generations, more than 100 years – since 1907, and sits on about 35,000 acres with 1,000 head of cattle. Running a ranch is hard work and with the influx of illegal aliens increasing, Rob was at ground zero of the stampede that is destroying the fragile desert landscape. (H/T Bonfire's Blog.)

They're Not Listening

Two editorials reminded me of the need for a Tea Party movement, and a Coffee Party movement as well. Both parties AREN'T LISTENING. Peggy Noonan looks at immigration policy and concludes that both parties let the problem slide towards crisis because they calculated that it was in their best interests to do so, because they could reap political rewards. Never mind what's good for the country.

But while the Democrats worry about the prospects of the Democrats and the Republicans about the well-being of the Republicans, who worries about America?

No one. Which the American people have noticed, and which adds to the dangerous alienation—actually it's at the heart of the alienation—of the age.

....

Instead, our national establishments deliberately allow the crisis to grow and fester, ignoring public unrest and amusing themselves by damning anyone's attempt to deal with the problem they fear to address.

Why does the federal government do this? Because so many within it are stupid and unimaginative and don't trust the American people. Which of course the American people have noticed.

The result of this failure is that Arizona is the kidnapping capital of the Unite States, due to the activities of drug cartels and human smugglers pouring across an undefended border. No matter the party of the President, the lawlessness on the southern border continues. Both parties don't want to alienate the Latino vote, which of course is very short sighted, because effective border patrol has zero impact on anyone who is already present in this country, legally or otherwise. I have been wrestling with the question of whether illegal immigration is an issue for the Tea Party movement and conclude that it is, because the movement exists to give voice to average Americans against the failures of BOTH parties.

Meanwhile, the leader from this month's Reason magazine is "We Are Out of Money" by Matt Welch. He points to the bipartisan failure to deal with ballooning federal and state budget woes.

In March the federal government created the most expensive new entitlement n four decades, even as the bond rating company Moody's Investors Service warned that debt level could soon precipitate a downgrade in U.S. Treasury bonds. The main opposition party fought the bill by decrying "cuts" to Medicare, and it has kept itself at arm's length from one of the few politicians talking seriously about long-term reform (see "Paul Ryan: Radical or Sellout?," page 18).

Commenting on Paul Ryan's plan to cut specific programs and entitlements, Reason points out that Paul Ryan is too radical for his own party.

In the current political climate, Ryan's plan will never pass. It is not merely too radical for the Democrats; it is too radical for the Republicans. But to be too radical for the party that championed an unfunded prescription drug benefit in 2003 and rang up massive deficits while in power, one need not be radical at all.

The good news in these and similar articles is that the nature of our problems are understood by more and more people, even if stupid MSM articles talk about draconian budget cuts. But the two parties have to start paying a price for their failure to look after the basic interests of the people as a whole. I would have liked to see more Tea Party primary challenges in both parties, because the only thing that motivates politicians is fear of defeat. Not to worry, even if the Republicans make gains this fall, the depth of both the hypocrisy and these problems mean they aren't going away soon. We will need a Tea Party for quite some time to come.

VAT Poll Closed

My VAT poll closed. Exactly half of you so hate the income tax that you were willing to go for the value added tax if it meant that we could scrap the income tax. KT keeps making the point that we need to pay for the size of our government, so additional taxes are necessary because the alternative is eventual default on our debt, with attendant catastrophe. I think that we should try shrink the two decades of growth in government at all levels before we start adding taxes. Ultimately, the efficiency of the tax system matters. The less distortion of normal economic behavior imposed by a tax, the better, because it allows the economy to run most efficiently. In this sense the VAT is the way to go. Right now, we penalize investment and saving, Obamacare's taxation of dividends only making that worse. A VAT taxes consumption, so it would have the salutary effect of encouraging savings. Chances we will get a repeal of the income tax to go with that VAT? Slim.