I'm From the Government And I'm Here to Help

Daniel Heninger observes why ObamaCare is failing.

For years, Democratic politicians said the health-care problem was about “47 million uninsured Americans.” Whatever the merits, many people were willing to do something for those with no health insurance. Suddenly, these voters discovered that ObamaCare is about them. When did that happen?

Every policy wonk in America may have known this was always an everybody-into-the-pool proposal, and Mr. Obama has talked himself blue saying people could stay with the insurance they’ve got or the doctor they’ve got, “if you’re happy with that” and don’t like the public option.

A lot of people simply don’t believe this. How come? White House adviser David Axelrod said this week, “Our job is to help folks understand how this will help them.” It could be they’ve already thought about that. For many people, the first six Obama months already have been an unsettling Dantesque tour through levels of government “help” they never knew existed.

It's all your fault. You just don't know what's good for you.

You Make Too Much Money

That's right, I'm talking to you. Well, those of you who live in Nevada anyway, you make too much money. Even those of you who've suffered pay cuts and job losses - that means you, too. You make too much money.

At least that's what the editorial board of the Las Vegas Sun believes. This morning they presented the latest effort in their never-ending crusade to increase taxes.

The biggest problem with Nevada’s government is that it relies on an antiquated revenue system that isn’t broad enough to collect taxes from everyone who should be paying them and isn’t sufficient enough to satisfy demand for essential services.

This is a clever ploy that the advocates of big government have discovered. They portray the government's insatiable desire for more of your money as simply a response to the demands of its citizens. Thus, it is merely like any other producer reacting to the desires of its customers.

But the thing is, the state will never have enough money to "satisfy demand for government services" because there isn't enough money. The demand for stuff that is paid for by someone else is limitless, infinite.

So pony up, taxpayer, and tighten your belt because there are plenty of essential services and needs that you need to pay for, like the airport's "giant snake that appears to slither over and below a concourse floor" and the "$75,000 glass sculpture suspended from its ceiling." Instead of taking the family to the movies you can gaze at pictures of the artwork you helped buy - assuming you can still afford your Internet service.

And don't get too comfy with your newly-reduced standard of living, either. Don't you know that "tax increases are needed each session" - presumably, until they've taken it all. Maybe by then they'll have "satisf[ied] demand for government services." But don't count on it.

(Doug Busselman also commented on this morning's Sun editorial.)

Demand for Free Money Surprises Government

Unless the Senate takes action in a very short time the Cash for Clunkers program will end on Tuesday. The program was supposed to run through November 1 but the fund was exhausted in less than a week. Imagine that, the government underestimated the demand for "free" money.

While responsible for an increase in new vehicle sales, it was not without unintended consequences, as The Heritage Foundation pointed out on Friday.

Does Nothing for Environment: Sens. Dianne Feinstein (D-CA) and Susan Collins (R-ME) are open to allocating more money for the program, but only if the rules are changed so that the program might actually do something for environment; because right now it is not. Edmunds.com auto analyst Jessica Caldwell explains why: “What you buy has to have an increase in fuel economy from what you traded in. But in some cases, that increase can be minimal. Owners of large pickup trucks like a Ford F150 only have to buy a replacement that increases efficiency by one mile per gallon. And they still get a $3,500 rebate. The environmental impact is negligible and the impact on national fuel demand and consumption is very small. The only real benefit in a like-for-like swap can be improved emissions standards on newer vehicles. Rather than discourage those people, they included them in this program.” Caldwell didn’t even mention the pollution costs of actually building a new car and the disposal of the old car, rather than just the pollution caused by driving the vehicle.

Hurts Working Americans: The federal government’s push to help auto makers has unintended consequences which will hut many lower-income Americans. Economist, Freakonomics author and New York Times blogger Steven Levitt writes: “People who drive clunkers are generally not in the market for new cars. Presumably their replacement car will be a used car. The increased demand for used cars will lead to higher prices for used cars.” Driving up the cost of older cars may be an intended consequence for policymakers to encourage people to buy new, but it’s a bad deal for consumers.

The lower supply of used cars is also bound to have a negative impact on the environment. People who drive true clunkers are often not able to afford new cars, even with the government rebate. As the price of used cars rises some of them will no longer be able to afford used cars of more recent vintage with better gas mileage. They will continue to drive their clunkers rather than upgrade to a higher mileage used car.

Hurts Charities: Speaking of ads, you probably have heard a ton on the radio from charities asking you to donate your old car in exchange for a tax deduction. Do a Google search of “Donating Cars for Charity,” and you will see a list of charities that cash-for-clunkers is taking money from.

In addition, they also point out that it involves the government further in the market and, on top of it all, increases the debt. As the WSJ article reveals, the program is not without its implementation problems.

But the program has frustrated some dealers, who say they have hundreds of thousands of dollars of clunker claims outstanding and that the government's cash-for-clunkers Web site won't allow them to submit applications in a timely way.

[...]

The effort has been beset by other complications. Just six days after the clunkers program launched, it became apparent to DOT officials that they didn't know how much of the $1 billion allocated to the plan had been spent.

And late Thursday, administration officials told lawmakers that the program would be suspended at midnight. The White House reversed course several hours later and insisted the program wouldn't be suspended. On Friday, the White House assured dealers and consumers the program would continue during the weekend.

There are other problems in addition to those mentioned above. It is likely that many of the vehicles that are being traded in have been paid off and the buyers are purchasing new cars on credit. This purchase is bound to saddle some of them with additional debt that they can't afford. The government may be encouraging more people to assume debt they will be unable to pay back.

If the metric for success is the number of people who participate in the program then it has succeeded beyond anyone's dreams. However, the proper measures are its impact on the economy and the environment. Therefore, it is much too early to celebrate.

UPDATE: This WSJ editorial call the program "crackpot economics".

The subsidy won’t add to net national wealth, since it merely transfers money to one taxpayer’s pocket from someone else’s, and merely pays that taxpayer to destroy a perfectly serviceable asset in return for something he might have bought anyway. By this logic, everyone should burn the sofa and dining room set and refurnish the homestead every couple of years.

It isn’t clear this will even lead to more auto production over time, since the clunker cash may simply cause buyers to move their purchases forward. GDP will get a fillip in the third and perhaps fourth quarters, which will please the Obama Administration. But the test will be if auto sales hold up next year and into the future once the clunker checks go away. The debate over the subsidy may even have prolonged this year’s auto slump as buyers delayed their purchases waiting for the free lunch.

There Is Really A Free Lunch

Friday, July 31 was the anniversary of Milton Friedman's birth. Were he still alive he would now be, um, well, pretty old. Friedman believed that people should be free to engage in activities that advanced their own self-interest to the extent that those activities did not infringe upon others.

But what about when they do? What about when one's activities do impact others or when a transaction between two people has an effect on others not party to the transaction? What about externalities?

There are both positive and negative externalities. If someone has a beautiful garden or well-kept lawn that has a positive impact on others. Those create positive externalities. In that segment, Friedman also argues that the overall effect of the free market is a positive externality.

The most common justification for government intervention in the free market is to reduce negative externalities. Even Friedman argues that this is warranted, but in extremely limited cases and by limited means.

The legitimate role for government is, insofar as it can, to control and check negative externalities...Each case has to be considered more or less as in terms of a balance sheet...You need a cost-benefit analysis. In general, it's only where there are serious externalities where you can really make a case for government involvement. In general, also, whenever possible government should be involved by setting a fee on the activity concerned.

Pollution is the most common example of a negative externality. Using that example, Friedman counsels,

Your best procedure is to try to impose a charge on the disposition of the garbage rather than try to regulate the details of how the garbage is disposed of.

Our current regulatory system has a much broader view both of what constitutes a negative externality and the means of regulating them. In some cases, those arguing for government intervention deny that a cost-benefit analysis should be done. They dismiss any suggestion of weighing costs against benefits as putting profits ahead of people, for instance.

There is a powerful incentive for the expansion of the regulatory state as increasing regulation increases the power of the legislators and the regulators. Thus, we have a regulatory apparatus that grows more and more complex and regulates the most minute detail of nearly every transaction and every activity in which we participate. This is certainly not a system of which Friedman would approve nor one that results in the greatest benefit to society.

Regulation invariably benefits one competitor or group of competitors at the expense of others. In general, it benefits larger, more established firms at the expense of smaller, newer entrants. One reason is that larger companies have the capital base that allows them to absorb increased costs until they are able to pass them on to consumers and they have the structures (legal departments, for example) that make them better able to navigate a maze of regulations. (A more cynical reader may also note their greater political connections and influence also give them the ability to affect regulation to their benefit.) As a result regulation reduces competition and economic dynamism.