Thursday, September 03, 2009

Obama Launches Price Controls


The Thursday edition of The Wall Street Journal headline read: "Obama Relaunches Health Bid." However, the real story was not that at all; the real story was the stealth imposition of price controls... in a vacuum.

"But if prices don't fall by a certain percentage and coverage doesn't expand beyond 95% in a given state after a time, the plan would call for adding a government insurance option to that state's choices, according to the aides familiar with the White House conversations."
Let's look at that a bit more closely.

  1. The government mandates that prices for insurance fall by an unstated percentage... for the same coverage... for reduced coverage... for expanded coverage... no clear definition there... or the government steps in.
  2. The government mandates that coverage must expand beyond 95% of all people in the state... legal U.S. residents... legal U.S. residents and legal foreign persons... legal U.S. residents, legal foreign persons, and all illegal foreign persons... no clear definition there... or the government steps in.
Let's presume that:
  1. The government mandates that all people regardless of legal or illegal status must be covered beyond 95% of the total population and it is the responsibility of the insurance companies to be sure they are covered even though the insurance companies have no authority to force anyone to be covered and, furthermore, even though the federal government would make it illegal to not have insurance, the federal government would not accept responsibility for achieving the 95% coverage in any particular state. That's certainly clear enough.
  2. The coverage mandated at reduced prices would still require the insurance companies to cover new procedures regardless of the expense of those procedures if the government deemed those procedure to be worthwhile and even if covering those procedure meant providing insurance coverage at a loss. That's certainly clear enough.
  3. Insurance coverage for high-risk individuals would be mandated as part of the reduced prices-expanded coverage requirements thereby insuring coverage will be provided at a loss. That's certainly clear enough.
  4. If one insurance company fails to meet its obligations under the mandate causing the state mandate requirements to be missed, all insurance companies in the state will be held responsible for the failure and subject to government controlled, taxpayer funded competition. That's certainly clear enough.
From the government's point of view, this is a no-brainer. After all, the government has operated at a loss forever and has been able to expand its operations and coverage of society's actions, so why shouldn't insurance companies be expected to do the same?

Next on the list:
  • Public option car and truck insurance with mandatory coverage requirements for those who ignore present mandatory requirements.
  • Public option homeowners and renters insurance with mandatory coverage requirements for those who chose to not have insurance.
  • Public option dental insurance with mandatory coverage requirements for those who choose to pay for their own dental care.
In each case, insurance companies will be responsible for making sure the mandates are met... at reduced prices.

Next for price controls... reductions:
  • Rent
  • Fuel
  • Food
  • Clothing
  • Transportation
Of course, you'll note that federal and state governments are exempt from any of the above regulations and mandates and cost reductions.

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There is always an easy solution to every human problem—neat, plausible, and wrong.
Henry Louis Mencken (1880–1956)
“The Divine Afflatus,” A Mencken Chrestomathy, chapter 25, p. 443 (1949)
... and one could add "not all human problems really are."
It was beautiful and simple, as truly great swindles are.
- O. Henry
... The Government is on course for an embarrassing showdown with the European Union, business groups and environmental charities after refusing to guarantee that billions of pounds of revenue it stands to earn from carbon-permit trading will be spent on combating climate change.
The Independent (UK)

Tracking Interest Rates

Tracking Interest Rates


SEARCH BLOG: FEDERAL RESERVE for full versions... or use the Blog Archive pulldown menu.

February 3, 2006
Go back to 1999-2000 and see what the Fed did. They are following the same pattern for 2005-06. If it ain't broke, the Fed will fix it... and good!
August 29, 2006 The Federal Reserve always acts on old information... and is the only cause of U.S. recessions.
December 5, 2006 Last spring I wrote about what I saw to be a sharp downturn in the economy in the "rustbelt" states, particularly Michigan.
March 28, 2007
The Federal Reserve sees no need to cut interest rates in the light of adverse recent economic data, Ben Bernanke said on Wednesday.
The Fed chairman said ”to date, the incoming data have supported the view that the current stance of policy is likely to foster sustainable economic growth and a gradual ebbing in core inflation”.

July 21, 2007 My guess is that if there is an interest rate change, a cut is more likely than an increase. The key variables to be watching at this point are real estate prices and the inventory of unsold homes.
August 11, 2007 I suspect that within 6 months the Federal Reserve will be forced to lower interest rates before housing becomes a black hole.
September 11, 2007 It only means that the overall process has flaws guaranteeing it will be slow in responding to changes in the economy... and tend to over-react as a result.
September 18, 2007 I think a 4% rate is really what is needed to turn the economy back on the right course. The rate may not get there, but more cuts will be needed with employment rates down and foreclosure rates up.
October 25, 2007 How long will it be before I will be able to write: "The Federal Reserve lowered its lending rate to 4% in response to the collapse of the U.S. housing market and massive numbers of foreclosures that threaten the banking and mortgage sectors."
"Should the elevated turbulence persist, it would increase the possibility of further tightening in financial conditions for households and businesses," he said.

"Uncertainties about the economic outlook are unusually high right now," he said. "These uncertainties require flexible and pragmatic policymaking -- nimble is the adjective I used a few weeks ago."

December 11, 2007 Somehow the Fed misses the obvious.
[Image from:]
December 13, 2007 [from The Christian Science Monitor]
"The odds of a recession are now above 50 percent," says Mark Zandi, chief economist at Moody's "We are right on the edge of a recession in part because of the Fed's reluctance to reduce interest rates more aggressively." [see my comments of September 11]
January 7, 2008 The real problem now is that consumers can't rescue the economy and manufacturing, which is already weakening, will continue to weaken. We've gutted the forces that could avoid a downturn. The question is not whether there will be a recession, but can it be dampened sufficiently so that it is very short.
January 11, 2008 This is death by a thousand cuts.
January 13, 2008 [N.Y. Times]
“The question is not whether we will have a recession, but how deep and prolonged it will be,” said David Rosenberg, the chief North American economist at Merrill Lynch. “Even if the Fed’s moves are going to work, it will not show up until the later part of 2008 or 2009.
January 17, 2008 A few days ago, Anna Schwartz, nonagenarian economist, implicated the Federal Reserve as the cause of the present lending crisis [from the Telegraph - UK]:
The high priestess of US monetarism - a revered figure at the Fed - says the central bank is itself the chief cause of the credit bubble, and now seems stunned as the consequences of its own actions engulf the financial system. "The new group at the Fed is not equal to the problem that faces it," she says, daring to utter a thought that fellow critics mostly utter sotto voce.
January 22, 2008 The cut has become infected and a limb is in danger. Ben Bernanke is panicking and the Fed has its emergency triage team cutting rates... this time by 3/4%. ...

What should the Federal Reserve do now? Step back... and don't be so anxious to raise rates at the first sign of economic improvement.
Individuals and businesses need stability in their financial cost structures so that they can plan effectively and keep their ships afloat. Wildly fluctuating rates... regardless of what the absolute levels are... create problems. Either too much spending or too much fear. It's just not that difficult to comprehend. Why has it been so difficult for the Fed?

About Me

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Michigan, United States
Air Force (SAC) captain 1968-72. Retired after 35 years of business and logistical planning, including running a small business. Two sons with advanced degrees; one with a business and pre-law degree. Beautiful wife who has put up with me for 4 decades. Education: B.A. (Sociology major; minors in philosopy, English literature, and German) M.S. Operations Management (like a mixture of an MBA with logistical planning)