In spite of the FBI's decision not to prosecute Hillary (which wrote about here), the scandal surrounding her email server is alive and well.
Wednesday, August 31, 2016
In spite of the FBI's decision not to prosecute Hillary (which wrote about here), the scandal surrounding her email server is alive and well.
Tuesday, August 30, 2016
Last Friday, a new scandal erupted when San Francisco 49ers Quarterback Colin Kaepernick remained seated during the national anthem before a preseason game. Interviewed later, Kaepernick said it was a deliberate act of protest. And the reason for his protest that was most widely reported was about racial inequality, specifically his comment that "not going to stand up to show pride in a flag for a country that oppresses black people and people of color."
Thus, the controversy fell along familiar racial lines. Conservatives get to be outraged that someone would not be proud of their government and its symbols. After all, what could be more un-American than not showing blind loyalty to a government one finds oppressive? If only we had some kind of national precedent for protesting an unjust form of government...
Meanwhile, progressives could rejoice in the fact the issue of racial injustice was in the news and most--if football fanaticism didn't take precedent--surely supported him. However, it must have been a hollow joy. Because while it was getting attention, a significant portion of that attention amounted to a collective eye-roll.
The outcome for all concerned might have been considerably better if the media had decided to report the rest of what Kaepernick said. In fact, while concern about racism was part of the message, it was probably not the most interesting part. In particular, this is what he had to say about the presidential election--and what's notable is that his contempt was decidedly bipartisan in nature:
You have Hillary who has called black teens or black kids super predators, you have Donald Trump who’s openly racist. We have a presidential candidate who has deleted emails and done things illegally and is a presidential candidate. That doesn’t make sense to me because if that was any other person you’d be in prison. So, what is this country really standing for?One might think it would be an important news story when a black celebrity, who's in the news for political reasons anyway, decides to call out Donald Trump and Hillary Clinton for being racist. But instead, the news focused on a comfortable, simpler narrative without that nuance.
Read more about Kaepernick's interview at Zero Hedge.
More US Allies Committing Atrocities
Reuters is reporting that the Shi'ite militias that the US backs in Iraq engaged in a series of atrocities after capturing Fallujah from ISIS. Fallujah was an overwhelmingly Sunni city, and the Shi'ite militias apparently tried to get revenge on many Sunni civilians. According to Reuters, the violence involved hundreds of victims and the use of both torture and execution. The exact death toll is uncertain, however, as nearly 700 people remain missing.
This story should be a reminder that, as we often say, there are no good guys in a civil war. The longer they drag on, the more brutal all parties to the conflict tend to become as more moderate and peaceful people flee or die in the cross-fire. This is also an excellent reason for the US not to intervene on any side. Any other course of action will invariably lead us to support atrocities in some form.
Read the quick summary from Antiwar.com on this story, or the full report from Reuters.
Instant Runoff Voting on the Ballot in Maine
Closing with a more optimistic story today, The Intercept is reporting that voters in the state of Maine will get the chance to vote on a election process in November. The proposal is referred to as Instant Runoff Voting, and it's nice because it effectively removes the "wasted vote" excuse for voting for a Republican or Democrat when you actually prefer someone else.
We've previously written at length on why the "wasted vote" excuse is nonsense in the first place. But since, sadly, only a small portion of Americans are regular readers of The Daily Face Palm (for now), we're delighted to see formal, structural solutions to the problem emerge.
The basic idea is that voters rank their choices of candidates, so that if their first choice can't win a majority, then perhaps their second choice will. So instead of a vote for Johnson being a vote for Trump / Clinton (depending which party is warning you), it would make formally ensure that a vote for Johnson is only, well, a vote for Johnson. That's how it should be. In practice, it sounds like the legislation will only apply to statewide elections at first not the presidency, but still it could be a big step.
Read The Intercept's full article for more on this system and the background on Maine politics. Naturally, they approach the story from an overtly progressive lens, but the content is still good. And the fact is that this system, if implemented, would likely help minority ideas of all sorts, right, left, and libertarian.
Monday, August 29, 2016
In a dramatically over-hyped meeting in Jackson Hole, Wyoming last week, the leaders of the Federal Reserve met for an annual symposium. Naturally, Fed Chair Janet Yellen was the one everyone was focused on, and her talk was decidedly ambiguous--which is what we've come to expect from the Fed in recent years.
Perhaps the most important line in her speech was her note that the Fed could consider purchasing "a broader range of assets". This is an indirect way of saying the Fed could consider buying corporate bonds and potentially stocks, instead of just government bonds to stimulate the economy with quantitative easing (which is money created out of nothing). This program has already been implemented by both the Bank of Japan and European Central Bank, and it's a truly terrible idea. In essence, it amounts to directly transferring wealth from the general public to people invested in the stock and bond market in order to prevent stock market from falling. Thus, not only does such a program explicitly prop up asset bubbles (which most of us frown upon), it also amounts to a wealth redistribution program from the poorest people (those with little or no financial investments) to the rich (who hold many such assets).
Fortunately, the Fed contends that this awful idea is merely something that should be considered and researched for the future, rather than something they are actively contemplating in the present. That said, we should have little doubt that they will attempt to implement this policy when the next recession strikes.
The other notable aspect of Friday's speech is that Yellen stated that the case for a rate hike is "strengthening". And in case the market didn't get the message, Fed Vice Chair Stanley Fischer noted in an interview that Yellen's comments were "
Reason Triumphs A Little in Illinois Pension Debate
Last week, we discussed the precarious situation of the Illinois Teachers' Retirement System (TRS) pension plan, and the ongoing feud about the assumed rate of return.
Basically, the politicians wanted to keep the assumed rate of investment return high because it makes the pension plan look better than it really is. This, in turn, means the state government doesn't need fork over millions of dollars to the pension fund right away in an effort to keep the fund afloat. And because Illinois already has major budgetary issues, this is a very big problem for the politicians.
There's been an update on this story, and incredibly, reality triumphed over political imperatives. That doesn't usually happen.
Specifically, the TRS lowered its assumed rate of return to 7.0% from 7.5%. This is still very unrealistic, but it is slightly less unrealistic. That's still a win.
This development is good news if you're a TRS pensioner because it means the government will have to contribute more money to the plan and your pension payments won't run out quite as soon. If you're an Illinois taxpayer on the other hand, a new round of financial pain is about to start forthwith.
Turkey Invades Syria
The cluster that is the Syrian War got even more complicated last week when Turkish troops invaded Syria to participate in the assault on Jarabalus, in the country's north. ISIS was holding Jarabalus prior to the assault, and apparently, most of the ISIS fighters fled in the face of overwhelming firepower from the Turkey's troops and the rebel groups that they accompanied.
The immediate goal of the assault was about getting rid of ISIS, and that was one of the effects. However, the more important purpose of this attack was that Turkey wanted to prevent the Syrian Kurds from expanding their territory along the northern border. Readers will recall that the US backs the Syrian Kurds and even has special ops troops embedded with some of them; however, Turkey views the Syrian Kurds as a major threat.
Thus, the practical effect of the new Turkish intervention--which expanded to more villages over the weekend--is create even more fault lines in the Syrian conflict. The US and Russia back the Syrian Kurds, and now Turkey is directly confronting them. Turkey is on-board with fighting ISIS, along with Russia, Syria, and the US. Turkey also backs other Islamist rebels that are fighting Assad; the US is broadly on board with this policy, but Russia staunchly opposes it. Any one of these tensions could quickly lead to escalation, and that's why it's alarming that Turkey just added one more.
The only good news is that there's a new round of peace talks this week that hold more promise than most; here's hoping the US is finally willing to give up on regime change so a real ceasefire can be reached.
Read Patrick Cockburn for an in-depth take on the latest developments.
Thursday, August 25, 2016
For many people, it's a textbook example of market failure that demands government intervention.
In fact, it's a perfect example of government failure, and the best solution will be found in freer markets, not increased regulation.
Before we get to the economics of it, it's worth rehashing the basics of this scandal.
The EpiPen is used to treat life-threatening allergic reactions on the spot. It works by delivering a preset dose of the drug epinephrine. The tool is simple enough that even people who are panicking during an allergic reaction can self-administer the medication they need. It's a great idea, and it's been around since the 1970s. Epinephrine has also been around for some time, and is available in cheap generic forms today.
The problem is that one company, Mylan, owns the rights to the EpiPen device, and it has had a near-monopoly on the market. Thus, depending on where you read it, the price of the EpiPen has increased by 400 or 500 percent since around 2007. Given the critical nature of the device for people with serious allergies, these price hikes have not been too popular.
But this is where economics comes into play. Companies don't raise prices in a vacuum, and precious few could manage a four-fold increase and live to tell about it. If companies are raising prices dramatically and still making money, one of the following must be true:
- Their product is perceived to be so much better than the competition that their customers are willing to pay more. (Think Apple vs. PC.)
- Their product, and the underlying resources are in very short supply, and all companies in the industry are being forced to raise prices as a result. (For instance, this can happen for building materials after a natural disaster takes place.)
- Or more commonly, the company has little to no competition. And the government is keeping the competition out.
The government steps in to regulate the market in order to protect consumers.
These regulations have unintended consequences, and serve to restrict the amount of competition and supply in the market.
Prices rise as a result.
Consumers complain about the price increases, and government introduces subsidies or other programs to offset the cost. Invariably, some consumers will fall through the cracks and find themselves without any access to the product they want or need.
Wednesday, August 24, 2016
The topic at hand was one of the state's numerous government pension funds--the Teachers' Retirement System (TRS). And like most, if not all, government pension programs, this one is deeply underfunded. As it stands, the pension fund's assets are estimated to cover just 42% of its obligations.
In essence, this means that under current assumptions about workers' life expectancy, future benefit payments, future investing returns on the pension assets, and future government contributions to the pension fund, the plan would have to start paying 42 cents on the dollar to pensioners right now in order to be sustainable in the long term. That gives you some sense of how bad things are.
But in reality, however, things are actually much worse.
The problem is that at least one of the assumptions used to calculate the pension's status is entirely implausible. The TRS assumes that they will earn an average 7.5% investing return on its funds. But the Federal Reserve's aggressive monetary stimulus efforts have pushed interest rates and bond yields to extremely low levels. And rates have stayed that way for years on end. For example
All of this has severe negative ramifications if you're a pension fund that invests in bonds to provide a safe and reliable return. As of this writing, even long-term US government debt like the 30-year Treasury yields a mere 2.24% return, and corporate debt doesn't offer much higher returns. Thus, in the current environment, pensions can no longer count on earning a 7.5% return with an acceptably low level of risk. But when the pension accountants go to calculate just how deep in the hole they are, this reality is forgotten. The accounting assumes the fund pension will continue to make 7.5% in spite of the fact that it has no realistic chance of doing so.
And this is where politics come into play. A growing number of analysts and observers are starting to note the obvious--that it is clearly absurd for pensions to assume a 7.5% return. Some have suggested a more modest figure like 4% would be much more credible and achievable, and honest, for anyone who cares about that.
But if this reality were acknowledged for a pension like the TRS, then the government would be obligated to contribute dramatically more funds to the pension to try to make it sustainable. This means higher tax rates or less spending in other areas--neither of which are going to be politically popular.
Thus, the governor of Illinois, Bruce Rauner, is trying to do everything in his power to kick disaster down the road, and presumably beyond his tenure as governor. There's nothing especially novel about a politician trying to ignore reality and delay negative consequences. But this case is still exceptional for just how bluntly they are willing to explain this rationale.
As Reuters reports, a senior adviser wrote a memo on the TRS pension situation, which included the following:
If the (TRS) board were to approve a lower assumed rate of return, taxpayers will be automatically and immediately on the hook for potentially hundreds of millions of dollars in higher taxes or reduced services.And so, Illinois' Senate Minority Leader Christine Radogno proposed a bold political solution. Just kidding. Here's what she said:
This issue is important enough at the very least to put the TRS board on notice [that] we don’t want them taking any action that could cost taxpayers $200 to $300 million without appropriate scrutiny.In other words, the TRS needs to continue to pretend that all is well with its investments, so that Illinois isn't forced to take action to address the problem now.
Of course, a compelling case could be made that the pensions in Illinois are already well-beyond saving. But what this latest exchange shows us is that even if they could be saved, mathematically and economically, it will always be impossible to save them politically.
Faced with the current pension crisis, the right response economically is to start acknowledging and addressing the problem as soon as possible. That would allow the financial pain, to pensioners and/or taxpayers, to be spread out over a longer time frame and could avoid an outright collapse. But the right response politically is to deny a problem exists to avoid causing voters any pain until the problem is too big to ignore (or fix).
In a case where rational long-term decision-making could produce a softer landing for the pension problem, politically motivated decision-making all but ensures the problem will end in full-on collapse.
It's true for Illinois and it's true for Social Security. It's not because the politicians are bad or stupid (though they may be). It's just that their incentives are wrong.
We can't trust people with short-term incentives to make good long-term decisions, yet that's what government pension programs ultimately require. Thus, we should not be surprised to see them slowly, tragically crumbling all around us.
(For readers interested to read more about this story and additional context on the Illinois pension crisis, this summary from Zero Hedge offers an excellent analysis.)
Poverty may be the worst thing that conservatives and progressives agree on.
It's not on policy, mind you. But their policy proposals are both motivated by same basic assumption about what causes poverty--namely, the ignorance and incompetence of poor people themselves.
Some may surely bristle at this description, so it's useful to see how this concept is evident in the ideas that are explicitly advanced by both conservatives and progressives.
Conservatives tend to assume that poor people are poor because they make bad life choices. Maybe drugs, maybe having sex and getting pregnant too early, or maybe just spending more than they can afford to. And from this, conservatives often conclude we need not use government policy to help poor people. After all, they brought it on themselves, so how can we hope to save them from their own bad choices?
As appalling that position may sound, the progressive take is not really much better. Painting with a broad brush, progressives generally believe poor people are poor because an array of systemic forces stand in their way of a better life. They aren't wrong about this, but they are wrong about what those forces are.
Usually, progressives view the poor as a victim of the capitalist system, and every business they interact with is hellbent on exploiting them. Employers want to pay them too little, landlords want to charge them too much, and grocery stores probably want to sell them junk food--culminating in the relatively new issue of food deserts.
But notice what the progressive story also entails. In a capitalist system, people can't be (legally) exploited without their consent. What progressives are often ultimately saying about poor people is that they don't know what's really in their best interest.
Splitting a flat with another family might be necessary to save on the cost of rent. But it would be too degrading to their dignity so it shouldn't be allowed; city planning codes can make it illegal to solve this problem. This may make housing too expensive, no matter. No matter, we'll have the government depress interest rates and build affordable housing to fill the void.
Working overtime might help poor people make ends meet. But as we know from Mr. Sanders, progressives believe that if you work 40 hours a week, you should earn enough to not be in poverty. Thus, employers should be punished for making anyone work more than that and they are--in particular, employers have to pay time and a half for every hour above 40 per week. This seems like a benefit to the worker, but in practice, it serves to eliminate choice and flexibility. If the 41st hour of the week costs 50% more than other labor, employers will be reluctant to pay for it. So poor people who need to work more than 40 hours to get by may need to find a second job instead, since working overtime has become artificially expensive for employers and that much harder to find.
Not to worry, this has a solution too. If working 40 hours isn't enough to get by right now, then we just need to raise the minimum wage. And so on, and so forth.
Each progressive intervention creates problems that warrant new interventions to solve them. But the root cause in all of it is the same. Poor people are not smart enough to make good decisions for themselves--what wage is appropriate, how much they should work, how they should live, etc. Instead it's up to the high-minded and selfless progressive to craft policy to make certain unsavory choices illegal--thereby preventing the poor from being exploited.
Thus we see that, while the motivations and policy prescriptions may differ markedly, the fundamental assumption about poor people is the same for many conservatives and progressives alike: poor people are poor because they don't act in their own best interest. For conservatives, this is a justification for doing nothing at all, a defense of the status quo. For progressives, it's a justification for an endless series of interventions in the economy designed to help the poor, without regard for likely consequences.
Libertarians take a different approach.
Broadly speaking, we agree with progressives that there are a myriad of systemic forces that exist today that help keep people in poverty. The problem is that we believe most of those forces are the creation of government, not of capitalism.
We believe that poor people are in the best position to decide what is right for themselves. And each intervention that restricts their choices, no matter how well-intentioned, is likely to make them worse off.
To see exactly how this phenomenon manifests in practice, we recommend this excellent article from Charles Johnson at the Foundation for Economic Education. In it, Johnson shows how well-meaning policies on everything from housing to food safety have created a world where it is extremely difficult for poor people to get ahead or even get by. It's an essential read for anyone who cares about these issues.
Here's the link:
Monday, August 22, 2016
Without debate and with little fanfare, the US has announced a major escalation in the Syrian conflict. In a move pregnant with disaster, the Pentagon has declared an "exclusion zone" over a part of northeastern Syria around the town of Hasaka.
This is an extension of a dangerous development over the weekend in which the US scrambled fighter jets to intercept Syrian planes that were attempting to bomb targets in Hasaka. That episode did not see any shots fired between the planes. However, with the new announcement, it is possible that future encounters could result in dogfights between US and Syrian warplanes. And since Syria is backed by both Iran and Russia, this would be a major progression of the indirect proxy war going on currently.
All of which might have a reasonable person wondering why any of this is occurring? Why did the US escalate the conflict, and why now?
The answer from the Pentagon is... self-defense. That's not a joke. Here was how Pentagon Spokesman Peter Cook explained it:
Our warning to the Syrians is the same that we've had for some time, that we're going to defend our forces and they would be advised not to fly in areas where our forces have been operating.Seen in isolation, that statement sounds sort of reasonable. But in context, it is not at all.
What Cook is referring to is the open but little-discussed fact that the US has special operations troops on the ground in Syria. These troops are embedded with a Syrian Kurdish faction called the YPG, which is generally regarded as one of the US's more reliable allies in the fight against ISIS. And for the most part, the YPG has kept its focus on ISIS. Partly this may have been a matter of priorities, but it could also be explained by geography. The Kurdish forces are located primarily in the northern parts of Syria, and so most of the adjacent territory is held by ISIS rather than forces affiliated with the Syrian government. Thus, they are usually pitted against ISIS in the current conflict.
Hasaka, however, is the exception to the general rule above. Here, the YPG and the pro-government forces had generally split control of the city with relative peace, but fighting broke out in recent days.
It's not clear who started the fighting, but it is clear that the fighting has continued for multiple days. And because US special operations troops are embedded with the YPG, this means the US forces are now engaged, directly or indirectly, with forces aligned with the Syrian government.
While US proxies of some description have been engaged against the pro-government troops routinely in other parts of country, to my recollection, this is the first time a force that contained US troops was fighting directly against the Syrian regime or its partners.
And that's how we get to the pretense of self-defense advanced by the Pentagon. In an overt violation of Syrian sovereignty, international law, and the US Constitution, the US sent some 300 troops into Syria to embed with an insurgent group. This group is now fighting pro-government forces. And so the US is declaring that it will shoot down Syrian warplanes who attempt to bomb the insurgent group.
To put a finer point on it, analogies are always helpful. Of course, it's somewhat silly to speak of another country invading the US, but please humor me. Imagine the Vermont secession movement took an inexplicably violent, imperialist turn and sought to conquer the rest of New England before breaking away into an independent country. Ever interested in revenge, suppose Russia backed this secession movement and embedded some of its own elite officers within New England to help them out. Next, the US attempted to conduct airstrikes against the secessionists only to be threatened by Russian fighter jets. And Russia declares an "exclusionary zone" over the conflict area in order to "defend its forces".
That is the equivalent of the US position in Syria right now. First, we invaded, then we got in a battle with government forces, and now we are claiming self-defense. It is equal parts reckless, ridiculous, and illegal, and it is the official US policy in Syria.
This is how conflicts spiral out of control.
Newly protected from government airstrikes, the YPG is less likely to pursue a ceasefire in Hasaka against government forces. The Syrian government is similarly unlikely to surrender more territory without a fight, for fear of establishing precedent. And the US is unlikely to back down from this new policy, for fear of the domestic political fallout. (Can't you just imagine the ready-made attack lines--"The Democrats abandoned our allies on the ground in Syria, so they could appease Assad and the Ayatollah of Iran!")
The end result is an incredibly combustible situation. And if and when it explodes, there's little doubt that American politicians will breathlessly decry it as an act of aggression by the other side.
Sunday, August 21, 2016
To see why, first it is important to clarify the definition of ransom. Wikipedia uses the following definition, which seems appropriate: “Ransom is the practice of holding a prisoner or item to extort money or property to secure their release.”
Assuming the payment of $400 million was a prerequisite for the prisoner exchange to occur, as it now appears, a very narrow interpretation of the facts would call it either ransom or a bribe. Arguably, since prisoners were released on both sides rather than just from Iran, the payment would be more of a bribe to ensure the transaction took place. However, given that bribing a foreign government and paying ransom to it, are similarly blameworthy, this distinction is not critical. What matters is whether the payment truly constituted either in any meaningful sense. I would argue it does not.
The reason is that the US already acknowledged that it owed this money (and more) to Iran. This is critical. The connotation of ransom is that the kidnappers are trying to get money that does not otherwise belong to them, thus making it akin to theft. Obviously, the average criminal doesn’t kidnap for the purpose of trying to collect a legal debt that already exists. That would be absurd.
When I make my mortgage payment to US Bank, I’m not being extorted. It’s true that if I did not pay, they could eventually foreclose on the house and evict me. However, we don’t consider it extortion because there was a debt involved. Meanwhile, if criminals threatened to seize my house unless I paid them, this clearly would be extortion. The question of whether a debt existed beforehand is fundamental. And just as we don’t think it’s extortion when a legal debt is involved, it seems we shouldn’t think of it as ransom if the payment in question is, in fact, a repayment of funds that were already owed.
Based on this, one of two conclusions on the latest Iran scandal could be warranted. If one believes the debt involved to be legitimate, then the Obama Administration’s actions in the negotiations itself are not problematic. The US paid a debt that was owed; a prisoner swap ensued; and two longstanding issues that inspired hostility on both sides of the relationship—and thereby increased the chance for another needless war—have now been put to rest.
Alternatively, if one believes the debt in question is not legitimate and the US government did not owe any money to Iran, then the Obama Administration’s settlement is a problem, and constitutes either a bribe or ransom. In this case, the entire $1.7B that the US agreed to pay should be the amount that we object to. Unless we assume the US government will shirk on the unpaid balance, there is no reason to be up in arms exclusively about the $400 million paid in January.
If there’s an argument to be made about why the US did not owe Iran any money related to the old contract, then let’s hear it. Otherwise, it is difficult to understand why this should be a big scandal. Surely, the circumstances of the payment were cartoonishly suspicious (literally, flown-by-night), and the Obama Administration's shifting position on the story looks like a scandal--first, the negotiations on the debt and the prisoners were totally separate, and now we know there was some overlap. But the Obama Administration's failure to stick with a single version of events over the past few weeks does not change the facts of the underlying story. And that story is not a scandal; it is, instead, a very rare instance of diplomacy being used in the Obama years instead of coercion.
Also, it’s also worth noting that the $1.7B settlement is not a new story. The Wall Street Journal is (understandably) trying to play up the importance of their reporting, but all that’s new here is the timing and form of the payment—not that payments were going to be made. The settlement itself was widely reported back in January. So again, if we’re going to object, it seems like we should have been objecting to it in January, when the US agreed to pay the money, not just now that we learned some of the money was actually paid.
Friday, August 19, 2016
It appears to be legacy-polishing time at the White House. This is the time late in the second term where presidents start to recall the various terrible decisions they made over their tenure in office, and start looking to balance out the ledger so they'll still be remembered favorably. And since they aren't standing for reelection anyway, they tend to undertake actions regardless of their popularity politically.
For this reason, it's a time for both anxiety and cautious excitement, assuming there are at least a few issues where you share common ground with the president.
The goals of the legacy-polishing period are two-fold:
- To prevent any complete chaos or crisis from breaking out in the last days of your term, and
- To finally make progress on old campaign promises and pet projects alike.
Thursday, August 18, 2016
Ever with good intentions, Congress passes a law to further regulate a market that was already heavily regulated beforehand.
Private businesses try to participate in this market, only to find that they continuously lose money, year after year.
Said private businesses cease participating in this market in order to stop losing money, and focus their efforts elsewhere.
How would a reasonable person describe the behavior of the businesses? Rational, prudent, obvious?
How about greedy?
On the economic left, that appears to be a winning explanation for the fact that another major health insurance company has decided to withdraw from more of the Obamacare exchanges. Specifically, Aetna has announced plans to withdraw from 11 of the 15 states they have been participating in.
Senator Bernie Sanders offered a characteristically moderate assessment of the news:
It is disappointing that Aetna has joined other large for-profit health insurance companies in pulling out of the insurance marketplace. Despite the Affordable Care Act bringing them millions more paying customers than ever before, these companies are more concerned with making huge profits then ensuring access to health care for all Americans.A similar tone was struck by others in the progressive community, as noted in the piece cited above.
So what's Bernie talking about? Is Aetna simply walking away from profits in an effort to smite poor and sick Americans?
In fact, according to Zero Hedge. Aetna is projecting that it will lose $300 million on its Obamacare exchange business in 2016 alone. In context, this would represent 12.5% of Aetna's net income from 2015. So it's not going to bankrupt Aetna, but it is still significant.
Bernie is right that the Affordable Care Act brought in more paying customers; the problem is that those customers aren't free. The average healthcare expenses that came with them, at least in the state exchanges, were dramatically higher, on average, than the premiums and resulted in substantial losses for Aetna and others. Indeed, there has been a veritable flood of major insurance companies rushing for the exits on the Obamacare exchanges.
Bernie is also right that the health insurance companies are putting profits before ensuring access to health care for all. Of course they are. They are for-profit companies; it's kind of their thing.*
It's easy to blame for-profit companies for Obamacare's downfall, because people love to hate them. But it's not a new story that for-profit companies exist to seek profit. This was true before Obamacare was passed, it's true now, and it will be true in the future. Which leads us to a critical point:
If your healthcare policy requires companies not to pursue profits in order for it to be successful, then it is a terrible policy.
It's the economics equivalent of trying to fly by jumping off a cliff. It would have worked if gravity didn't exist, you say. Maybe so. But gravity does exist, and we know that in advance. Thus, it's a terrible idea, too.
The value of profits
More to the point, it's worth pushing back on the casual assumption that profits are evil. Profits are not evil. In fact, they are essential for a market economy to work. And the Aetna decision illustrates this point very well.
It is beyond the scope of our present discussion to give a full economic explanation of profits. But in the context of the healthcare, profits are a sign of sustainability. I don't mean sustainability in the environmental sense, but in the economic one.
If a business is making profits off providing a service, then chances are, it will continue to provide that service in the future. It's in the business's own self-interest to do so.
In a market-based healthcare system, everyone in the chain of service delivery needs to be able to make money--the doctor, the hospital, the medical supply company, and yes, even the damn health insurance company. Because if any member in this chain is failing to make money, then they are a risk to drop out.
This is precisely what happened with Aetna. It was losing money on the state exchanges, so it stopped participating. In some cases, this might be a minor inconvenience for policyholders who still have several options remaining. In other places, however, it is expected to reduce the highly touted competitive exchanges down to a single provider. So much for choice.
The core problem is that if the service-provider isn't making money, then it ceases to be about economic self-interest and starts becoming an act of charity. There's nothing wrong with charity. It's a wonderful thing. But people (and businesses, in some cases) provide charity when they have the resources and desire to do so. If they encounter financial challenges in their own life, they may have to cut back on giving and take on more profitable work. This obvious reality makes charity far less reliable and enduring than a regular market exchange that is in both parties' interest.
Based on this understanding, Aetna's decision must be viewed in a new light. Aetna's losses may have been due to the new Obamacare requirements, managerial incompetence, or a mixture thereof. In any case, something had to give. If we really want healthcare coverage for all, we probably also want that coverage to continue to exist over time. In other words, it needs to be sustainable.
And for it to be sustainable, it must be profitable--even for that widely-derided fount of evil known as the health insurance companies.
What comes next?
*Indeed, the publicly traded companies are actually required by law to attempt to maximize profits; that is, management can be sued by shareholders if they prioritize something besides profits.
Note: Another suggestion put forth to explain Aetna's behavior is that they are trying to use the bad publicity on Obamacare as leverage so that the Department of Justice will permit a major merger to go through. Senator Warren has suggested this, for instance. And the CEO of Aetna actually stated somewhat explicitly that, in the absence of a merger, Aetna might have to withdraw from its remaining states.
Certainly, this is a good negotiating tactic, but the conspiratorial angle is far from compelling. Of course, Aetna wants to pursue a merger that could save costs and further expand their insurance risk pools. That's obviously true, and it's conceivable it could help their bottom line. Fair enough.
But linking the decision to actually leave to their blackmail efforts seems to be a stretch. After all, they would have just given away 11 states worth of leverage without gaining anything in return, if this was the opening bid. So if the whole point of withdrawing was blackmail, then Aetna is awful at it.
Wednesday, August 17, 2016
Multiple seaside towns have adopted burkini bans, and now more are considering them. This week, French Prime Minister Valls decided to weigh in on the matter, reportedly speaking in favor of the bans and suggesting that burkinis are "not compatible with the values of France and the Republic".
All of which may have you wondering, what is a burkini? Glad you asked. In fact, it's basically what it sounds like--a rough combination of a burqa and a bikini. Or to be more precise, it's a full-body swimsuit worn by some Muslim women who apparently believe in dressing in conservatively, but still enjoy a day at the beach. While the styling is distinctive, in practice, it doesn't appear to be dramatically different than a full wetsuit. Here's a picture:
The bans are alleged to serve many practical ends, most notably hygiene. But the actual purpose of the ban is evident from the laws themselves. One municipal decree cited by Yahoo! News bans access to public beaches to (emphasis added):
...any person who is not properly dressed, respectful of moral behaviour and secularism, hygiene and bathing safety.Iin reality, this has nothing to hygiene or "bathing safety", whatever that may mean. Rather, it's an experiment in coerced secularism.*
Ideally, in a governing context, secularism should mean that the state is separate from religion and makes no laws concerning religion. Oftentimes, however, it ceases to be a principle of good governance and becomes a policy objective. This is what we're seeing here. In other words, it's no longer enough for the government to make no laws favoring particular religions; now, it needs to make laws favoring no religion. Or at least in the present case, opposing a particular type of religion.
Verbally, the distinction seems subtle, but it makes a world of difference.
Of course, the reason any of this is in the news is because France has suffered a string of terrorist attacks, and most, if not all, of the recent attacks have been claimed by the Islamic State. The backlash against burkinis amounts to lazy collectivism, with logic that runs something like this:
- Premise 1: Some people who self-identified as believing in Islam committed attacks
- Premise 2: Some followers of Islam believe women should wear very modest clothing in public
- Therefore: If women wear very modest Islamic clothing in public, they're probably with the terrorists.
Tuesday, August 16, 2016
That's because everyone was afraid it would be a lot worse.
You see, back in May of this year, the jobs report was nothing short of abysmal. After revisions, the number for May came in at just 24,000 jobs. This came on the heels of dramatic market instability in the first quarter of this year and a series of declining jobs reports preceding it:
- February (still normal): 233,000 jobs increase
- March (getting weaker): 186,000 jobs increase
- April (weaker still): 144,000 jobs increase
- May (falls off a cliff): 24,000 jobs increase
- GDP growth is hovering around 1%, well below what anyone thinks is a normal level of expansion.
- Corporate profits have declined for 5 going-on 6 consecutive quarters now
- US tax receipts have actually declined slightly for July YTD, relative to the prior year
Monday, August 15, 2016
First, here's what he said, at a campaign rally last week:
He is the founder of ISIS. He is the founder of ISIS, okay? He is the founder. He founded ISIS. And I would say the co-founder would be crooked Hillary Clinton.Since then, Trump has alternated between doubling down on this formulation and downplaying it by saying the obvious--namely that sarcasm is, in fact, a thing.
Ratings challenged @CNN reports so seriously that I call President Obama (and Clinton) "the founder" of ISIS, & MVP. THEY DON'T GET SARCASM?— Donald J. Trump (@realDonaldTrump) August 12, 2016
As the tweet above suggests, the whole episode led to a series of apparently serious journalism explaining that Obama is not literally the co-founder of ISIS. For instance, CNN's self-styled terror expert Peter Bergen wrote this rebuttal. Among its winning lines were the following:
Like so much else that Trump has said, these claims are false. The founder of ISIS is Abu Bakr al-Baghdadi, a shadowy Iraqi cleric who President Obama is doing everything in his power to kill.Wait, so you're telling me that Obama doesn't moonlight as Abu Bakr al-Baghdadi? Glad we got that cleared up, since I'm sure that's how most people interpreted Trump's remarks. After all, he's not prone to exaggeration.
Also, incidentally, the second part of Bergen's statement is wrong. In fact, President Obama is doing everything within his power and quite a few things that are beyond his power in an attempt to kill him--in particular, waging a war without Congressional authorization.
But I digress. While these various literal refutations seem merely inane at first glance, they actually serve an important purpose. By focusing the argument along the most narrow lines possible, the broader debate about America's interventionist foreign policy is avoided. The real question is whether America's interventions this century--in Afghanistan, Iraq, Libya, Syria, and elsewhere--have produced greater stability and security, or greater chaos. Any honest observer must conclude it is the latter.
In one sense, Trump is right: The blame for the ongoing, unquestioned disaster does rest on Barack Obama and on Hillary Clinton--who headed the State Department when the worst decisions were made. But it also rests on George W. Bush, and Trump was wrong to omit him.
With that framework in mind, let us briefly make note of the most salient policy disasters that helped lead to the creation of ISIS, which now has a presence in Iraq:
- Bush - Invading Iraq and overthrowing Saddam Hussein in 2003 based on the false pretense of weapons of mass destruction.
- Bush - Occupying Iraq after the regime change, ultimately serving as a security force for a new Iraqi government, no matter how corrupt and authoritarian it became.
- Obama (and Clinton) - Overthrowing Ghadafi in Libya in 2011, based on a false pretense of an impending genocide in Benghazi.
- Obama - Backing the substantially non-moderate opposition in Syria starting around 2012, based largely in the east of country. This invariably strengthened the budding rebellion among radicals in neighboring Iraq.
- That Al Qaeda in Iraq and similar extremist groups were dominant players in the Syrian rebellion
- That the Western powers, Turkey, and the Gulf States were supporting the rebellion anyway
- That the current trends could lead to the establishment of a "Salafist principality" in Syria and Iraq, but that could be useful for weakening Assad and, by extension, Iran.
Friday, August 12, 2016
Tensions spike along Crimean border after alleged Ukrainian terror plot
This past weekend, Russia claimed to foil a terror plot against the Crimean territory and accused the government of Ukraine of orchestrating. Tensions rose after this event. Now, the Ukrainian military has moved troops near the Ukraine-Crimea border and placed troops on the highest level of combat readiness, in an apparent show of force.
It goes without saying that Ukraine's military would be no match against Russia's if a conflict breaks out, so it's not obvious what the build-up is meant to achieve. Ukraine, for its part, has also claimed that Russia is building up forces on the Crimean side of the border.
Naturally, the US government (and much of the media) has treated Russian claims of a Ukrainian terror plot with a heavy dose of skepticism. And rightly so, as it is clearly an extreme and dangerous allegation. (One wishes the US media treated extreme accusations against Russia, say by a leading presidential candidate, with the same degree of skepticism, but that's not likely to happen anytime soon).
Having said that, it would be wrong to dismiss Russian claims out of hand. It's not clear how they concluded that the Ukrainian government itself was behind the plot, but it at least seems likely that a terror plot did occur. Assuming so, Ukrainian nationalists of some variety are the most likely culprits, though there's no particular reason to assume they are formally associated with the government.
The existence of a terror plot is credible largely because Russia has no obvious incentive to make it up. After all, Russia already annexed Crimea. And it has had many plausible opportunities / excuses since the Ukraine coup to launch a formal invasion of Ukraine in the past if it wanted to do so. It has no need to fabricate such pretexts.
Moreover, there is a history of sabotage against Crimea since the annexation. Last fall, for instance, power lines in Ukraine that carry power to Crimea were blown up, causing major power outages on the Crimean Peninsula.
Whatever the facts are on the alleged terror plot, the resulting tensions are an incredibly dangerous situation.
Another reminder that governments lie, but this time it's a good thing (you know, sort of)
Yesterday, we noted that official economic data produced by the US government deserves a heavy dose of skepticism.
Today, we're reminded that official assessments of the undeclared war on ISIS warrant skepticism as well.
The results of two Congressional investigations into manipulated military intelligence were just released. The long and short of it is that senior US military officials distorted intelligence in the ISIS war to portray a more positive and successful narrative than the facts warranted. It's also not a partisan attack, as both Republicans and Democrats came to this same basic conclusion.
This may explain why progress in the war has seemed so slow in coming. US military officials consistently proclaim that the war effort is working, even as, nearly two years into it, "success" has remained elusive. ISIS still holds Mosul and significant territory in Iraq; Al Qaeda remains a dominant force in Syria (and works closely with US-backed groups, which is awkward); and suicide attacks still occur, generally in the Middle East, but occasionally in the West as well.
Ironically, the dishonest pronouncements on the war are probably a blessing in disguise. Because if the US government acknowledged the war was not working, it would surely insist on doing and bombing even more than it does currently. Thus far, the official narrative of progress has probably prevented more civilians and American troops from being put in harm's way; for that at least, we can be grateful.
Hillary Clinton embraces protectionism
Hillary Clinton took another bold step to outcompete Donald Trump on the critical issue of economic
Given the populist disdain for international trade, the new rhetoric is not altogether surprising. It is however, somewhat depressing as this is an area where a center-left politician like Clinton would usually side with the conventional economic wisdom on trade--namely that it offers net benefits. It also shows the influence that Bernie Sanders and Donald Trump have had on American politics.
Of course, massively complex free trade agreements like the Trans-Pacific Partnership are not synonymous with true free trade. And the fact that Clinton's new position could scuttle the deal after election could offer a small consolation prize. Her new support for protectionist policies, however, represent another threat to a US and global economy that can scarcely withstand it.
For more, read our longer take on this story, the benefits of trade, and why the US presidential race seems like a constant race to the bottom.
Speaking at a rally in Michigan, Hillary Clinton apparently decided her current economic policies weren't sufficiently destructive. To remedy this, she announced that she now supports using "targeted tariffs" against other countries that "have gamed the system."
This position is mistaken and harmful to the average US worker. What politicians mean, in general, when they accuse foreign entities of gaming the system, is that they managed to sell goods at artificially low prices--prices so low that US companies and workers can't compete. The nefarious way in which they achieved this varies, depending on the politician--maybe currency manipulation (which everyone does), maybe paying workers too low of wages, maybe lax regulations, maybe government subsidies, and so on. But the general contours are the same.
To see why blocking trade is wrong, one only needs to consider the extreme case. What if countries were "gaming the system" so much they actually cut their net costs to zero and they just decided to give their product (let's say, cars) away in the US for free. Surely, no US manufacturer of cars could compete with free, and they would shortly go out of business, leaving their former employees unemployed. These people would struggle in the short-run. But meanwhile, consumers in the economy (including the displaced workers) benefit from free cars. At least in the short-run, a small fraction of people face hardship while the great mass of people benefit.
This exact same dynamic plays out with each new groundbreaking innovation as well. Lightbulbs displaced candlemakers, cars destroyed the horse-drawn carriage industry, and Microsoft Word surely displaced secretaries and typewriter manufacturers alike. Each development also dramatically improved worker productivity as well as the standard of living. International trade often seems like a totally separate economic issue, complete with its own set of jargon--trade deficit, "dumping", tariffs (instead of taxes), etc. But on a fundamental level, the same forces are at work.
The question is whether we should sacrifice the long-term interests of the many to the short-term interests of a few. Opposing international trade and supporting tariffs, means answering this question in the affirmative. And the logical extension of this principle is that our country, if the occasion arose, should refuse free goods and also actively block all technological innovation. This position is as close to self-refuting as they come--and now in the 2016 presidential race, it has bipartisan support.
Of course, given that opposition to trade was a core issue for Bernie Sanders, Clinton's new, stronger opposition to trade is not very surprising. It's also another example of how the political debate between the major party candidates continues spiraling downward. Both candidates have innumerable terrible ideas that could be credibly and persuasively exploited, by anyone that was trying. But instead, the candidates usually attack their opponents on the issues where they aren't quite bad enough. It's not framed that way, but that's the essence of what is happening.
Hillary supports a $15 minimum wage. So Trump, instead of explaining that the minimum wage harms the very people it seeks to help, breaks with Republican orthodoxy and supports an increase. Trump, when he's not calling for the US to murder terrorists' family members, occasionally says halfway noninterventionist things on war. So instead of focusing criticism on Trump's most belligerent remarks--a dovish line one assumes would resonate with her party--the Clinton campaign criticizes Trump for not expressing sufficient hostility with Russia. On nearly every issue where candidates differ, there is a race to be worse, first.
Trade policy appears to be just the latest competition. And regardless of which candidate runs faster, one thing is certain--everyone loses.