Occupy Wall Street

I think the Occupy Wall street movement is a good and a bad thing. It's a good thing because it opposes the marriage between big business and our government. The picking and choosing of who will succeed and fail from the Federal Reserve, subsidies for oil companies, and tax codes which all but encourage the off-shoring of American jobs. All of these practices stack the cards in favor of the super rich and one only needs to look at the bank bailouts for a shining example of this fact.

Unfortunately, the OWS rank-in-file some how view these practices as capitalism - and nothing could be further from the truth. The general definition of capitalism is the private ownership of the means of production and competitive free markets. As soon as you have government bail outs, a central bank establishing interest rates, government subsides for large corporations, you no longer of capitalism. You have a form of socialism, but this form favors corporations and oil companies. We've had this economic system for decades.

The question is how do we change this? OWS protesters seem to favor a shift to almost pure socialism. I suggest we actually give capitalism a chance. 

Health Care and Free Markets

I recently read a blog entry by Paul Krugman, a famous liberal op-ed columnist for the NY Times, in which he lists his reason as to why free markets cannot cure our health care problems. Mr. Krugman is an accomplished economist and is also a professor of Economics and International Affairs at Princeton University. His credentials are impressive, and the fact he has these credentials makes me even more confused when I consider his point of view. In short, Mr. Krugman postulates free markets are unable to help correct our health care challenges because:

1) You never know when you'll need health care and the costs are extremely high. The high costs create a need for insurance companies and since they operate for profit, your medical costs are their loss. This reality encourages companies to deny payment or insurance whenever possible.

2) You can't comparatively shop for health care, like you would a TV.

These points are valid, in a sense. However, I'm baffled as to why Mr. Krugman doesn't address the heart of the health care problem: costs are out of control. I've never understood why when considering health care, so many people, especially those with a pro-government solution point of view, do not ask why health care is so expensive (the rising cost of college is another example). Those who support a free market solution to addressing health care are putting costs front and center and believe the patient, not the insurance company or government officials, should be making health care decisions --- and yes, cost should be a factor when determining the next steps.

Insurance companies and medicare/medicaid provide near guaranteed sources of payment to those in the health care industry. As a result, companies will often produce new expensivee drugs and equipment with only marginal incremental benefits. Since patients have a reduced role in the decision process, the cost/benefit analysis between drug or equipment A vs. B has been diminished. This creates an environment where the most expensive "solutions" are being delivered to the patients too often.

The intent of the free market solution is to increase competition in pharmaceuticals and equipment which will ultimately encourage those in the health care industry to provide these products in the most efficient manner. Just like TVs, automobiles, and other products, companies will want to be able to provide their product to the most people to improve their bottom line. In order to do so, they will need to develop ways to produce their product in the most cost effective manner which will allow allow them to be profitable at lower price-points; and just as the decreased prices for TVs and automobiles allowed more people to obtain these items, increased competition will drive down prices for drugs and equipment which will allow more people to be able to afford them.

Secondly, Mr. Krugman's comments about comparative shopping are absurd. Yes, when you have a heart attack, you're not going to shop around for the best hospital while you're on a guerney. However, in a free market, the "shopping around" would have already taken place prior to the emergency. People will be aware of the best hospitals for a given service prior to their emergency, and they will choose to go to the best known hospital in their time of need. Again, the fact that Krugman even lists this as a reason why markets can't help our health care problems  makes me wonder if he is really this silly or just disingenuous. Both of which are rather concerning given his impressive credentials.

Maybe one day we as a society will learn that our current practices and regulations around health care are key drivers in the rising health care costs. I would suggest Mr. Krugman read articles from one of his employers, the NY Times, as well as another left leaning site, MSNBC. These articles list similar reasons for rising costs, as do others. The majority of the reasons all have a similar theme: rising costs are the result of increased government intervention. Until we adopt remedies which recognize government involvement as a key driver in rising costs, more and more people are going to be unable to afford the health care they need.

Finally, I'll end with a direct quote from F.A. Hayek which was in his book, The Road to Serfdom. His comments, I think, can be applied to how increased government involvement through regulation and medicare in our health care has actually made things worse vs. better:

"...the present state of the world may be the result of genuine error on our own part and that the pursuit of some of our most cherished ideals has apparently produced results utterly different from those which we expected."

European Debt Crisis and Greece

Anyone paying even partial attention to the news the past year has heard about the European Debt Crisis. A few weeks ago, a friend of mine asked me what it was all about and I realized I wasn't really sure. All I knew was Greece had some serious debt issues and the entire crisis has the potential to being even bigger than the US crisis in 2008. As a result, I decided to dig a little deeper into the issue. What will follow is a basic summary of what I understand to be the problem, specifically with Greece.

Greece has received a lot of attention due to concerns it will default on its debt. Greece joined the monetary EU in 2001 and from 2001-2007  enjoyed significant economic growth due to the low interest rates which came with their adoption of the euro. These low interest rates allowed the Greek government to run large deficits to fund social benefits and increasing public sector wages and benefits. Wages and benefits continued to rise well beyond any increase in production which further ballooned the nation's debt as a percentage of GDP, which now sits at 140%+.

The problem is Greece already had too much debt prior to 2001, but was able to conceal its debt level through legal "swap" products, or derivatives, provided by Goldman Sachs. In order to join the monetary union, a member state has to meet certain criterion and if their true debt levels would have been known, they may have never been permitted into the EU. Unfortunately, they were and now the EU, along with the rest of world, are at risk.

In 2009, Greece's true debt levels were revealed and ratings agencies immediately downgraded the Greek debt. As a result, bondholders started selling which caused interest rates on Greek bonds to rise all the way up to the mid 20%'s in mid 2011. This compounds the problem because since Greece is already saddled with debt, it can't afford to pay bond holders at those rates. The 140%+ debt as a % of GDP, rising interest rates on bonds, and unsustainable budget deficits caused Moody's to conclude Greece's chances of default are near 100%.

Why should such a small country's debt problems have such an impact on the world? Greece owes an estimated $300B to other nations and banks. If they default, it would have a sizable impact which would put other nations at risk and jeopardize the financial stability and economic growth of the EU. Greece isn't the only EU member with debt concerns. Spain, Ireland, Italy, and Portugal are facing their own debt and deficit issues. A Greece default could be a falling domino which these nations would be unable to avoid. Since the US relies on the purchasing power of the EU member states, this would certainly impact US growth through a reduction in exports. Additionally, American financial institutions hold EU assets and it is estimated nearly half of money-market funds include EU assets. Since the US economy is barely growing at just above 1%, a Greek default would be a significant blow to US hopes to avoid a double-dip recession..