October 3 is the first anniversary of TARP - the Troubled Asset Relief Program. You recall that the original intent of the bill was to purchase troubled assets from financial institutions to restore confidence in the credit markets. I had written when the act was proposed that it was doomed to fail. What was the price for the assets purchased? If purchased at market value, then it would do the institutions little good because it would still leave their balance sheets impaired. If purchased at a premium then the Feds would be stuck with an instantly underwater asset. In any event, it escaped me how all of this was to restore confidence. Of course, even the government soon realized the folly of its ways and quickly modified the implementation of the act - much to the chagrin of some legislators - to inject capital instead into failing institutions. I was actually ok with this if the capital was in the form of preferred stock. I favored the use of cumulative preferred where dividends were "guaranteed". If not paid then there would be an arrearage where the missed preferred stock dividends would all be paid prior to any payments to common stockholders. Of course, preferred stockholders do not have a vote or a direct say which seemed appropriate for the federal government. However, I was not surprised when the Feds decided to purchase common stock instead which gave this government entre into the decision making process at the largest financial institutions in the country. The president insists that he does not want to run the banks, he does not want to run the automobile industry and he does not want to run the insurance industry. Really? Then why is he? Have you heard a definitive exit strategy from the president? Neither have I.
The president in his speech to Wall Street on September 15 said that the days of "reckless behavior and unchecked excess at the heart of this crisis" are over. Au contraire, it is continuing. Only this time it is the government that is engaging in reckless behavior and unchecked excess. How else would you describe the $2 billion deficit, TARP, stimulus, cap and trade and health care reform?
Given the dislike for both parties, some are advocating a third party - like the Libertarian party. The problem is that given the structure of our political process a third party will insure permanent power being ceded to the Democrats. This is because the libertarians will come from the Republican base leaving the democrats with solid majorities in congress. America traditionally is divided into thirds. One third calling themselves democrats, one third republicans and one third independents. The power goes to the party that can sway the independents to their side. If members of the republican base have had it with the Washington republican establishment, then they need to vote them out of office and replace them with conservative republicans.
Isn't it interesting that the left's reaction to Joe Wilson's singular outburst has been the charge of "racism"? I personally don't know how they got there from there but it has been the manta of the media and the left ever since. This tells me that they have lost the battle over healthcare. The cry of "racism" is a last desperate attempt to get votes from the opposition to such an odious package. "I can't vote against this because I don't want to be accused of racism." Well I guess we are all racists now. I oppose health care "reform" - actually its health care takeover - for the reasons given in the editorial below. Since I will put my bona fides up against anyone (with the possible exception of John Lewis), dare they call me a "racist"?
This article appeared in the Knoxville News-Sentinel on September 6, 2009.
The nation is engaged in a spirited debate on health care, and it is wonderful to see democracy in full voice. Is there justification for a government takeover of health care?
First, is the debate over the quality of health care itself? Certainly, there is no dispute that cancer survival rates in the United States are dramatically higher than in managed-care countries. What about the delivery of health care? In Canada, a million people are waiting to see specialists, while another million are waiting for operations. This is in a country of 33 million! Can you imagine 18 million Americans waiting either to see a specialist or for an operation? Certainly, the issue is not access to health care since hospitals do not deny treatment to those who show up at their doors. Thus, the reason cannot be poor U.S. health care.
Second, is the debate over insurance? The Administration's estimate of 47 million "Americans" without insurance is bogus. Of that number, perhaps 12 million are illegal immigrants. Some 16 million make more than $50,000 a year but opt not to have insurance, and 9 million are unemployed but are typically without insurance for less than four months.
That leaves about 10 million citizens or 3 percent of the total population. It is irrational to dismantle U.S. health care for so small a number. A system could be constructed to cover this 3 percent and to provide catastrophic care for a fraction of the costs of a government takeover.
Third, is it because the rising costs of health care are the result of little competition? The president argues that a "public option" run by the government would create competition in the insurance marketplace and drive down costs. His example of the postal service giving competition to FedEx and UPS is laughable, and everyone knows it. It is the other way around. The postal service loses $7 billion a year and would lose more if its monopoly on first class mail were repealed. The reason why there is little competition and that costs are high is because the government prohibits competition. States set the rules, prohibit interstate competition and set costly mandates that drive up rates. If the president wants competition, the way to provide it is to take the government-imposed restrictions off the provision of insurance.
Fourth, is the proposed takeover because of costs? The president has stated that we pay a larger percentage of our gross domestic product (17 percent) for health care than any other industrialized country and that this cost is a "threat to our economy?" As Craig Karpel pointed out in the Wall Street Journal, would we be less threatened if we spent 8 percent like Haiti? Health care would be a threat to our economy only if it resulted in a net loss to the country. But does it?
Health care is a good like any other good. It employs 10 percent of the U.S. work force, contributes significantly to American exports, and its existence has lessened the impact of the recession. Karpel points to a study by Bob Hall of Stanford University and Charlie Jones of North Carolina State University that finds that by mid-century, the optimal amount of U.S. health care spending should be 30 percent of GDP.
If the president's assertion of a "threat" is true, it is true not for the health care industry, which is a productive part of U.S. society. The threat comes from the portion of the economy that is a net loss. It comes from the net loss of enterprises such as the post office, Amtrack, Social Security, Medicare and Medicaid. It comes from the federal government.
Harold A. Black is professor emeritus in the Department of Finance, University of Tennessee, Knoxville having retired after 24 years of service. He has served on the faculties of American University, Howard University, the University of North Carolina - Chapel Hill and the University of Florida. His government service includes the Office of the Comptroller of the Currency and as a Board Member of the National Credit Union Administration. He also has served on the boards of directors Home Savings of America and its parent company, H. F. Ahmanson & Co., Irwindale, California prior to its merger with Washington Mutual Savings Bank, on the board of New Century Financial Corporation, Irvine, California, then the nation’s largest real estate investment trust and as director and later chairman of the Nashville Branch of the Federal Reserve Bank of Atlanta. He writes an occasional article for the Knoxville News-Sentinel at http://www.knoxnews.com/staff/dr-harold-black/. His web page is haroldablackphd.com