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Title: Blog by Novelist William S. Frankl, MD

Archive for December, 2009

Fiscal Death in the West

Monday, December 28th, 2009

The following is an article written on Thursday, December 24, 2009 and published the  Web at Newsmax.com. Professor Rahn is a Senior Fellow at the Cato Institute and is chairman of The Institute for Global Economic Growth. He is a weekly economic columnist for the Washington Times.

Is the U.S. on Brink of Fiscal Death?

If governments continue to pile on more and more debt, when will they reach the tipping point?

The Greeks appear to be close to the tipping point, and it is only a matter of time before other European countries, and eventually even the United States, begin their fiscal death spiral.

The Greek government’s unwillingness to make the hard choices necessary to put its fiscal house in order in the past few weeks has caused investors to demand a 2.5 percent premium on its government-issued eurobonds over those issued by the German government.

First, a little background. Eurozone governments have a contractual obligation not to incur annual deficits of more than 3 percent, yet the deficit forecast for 2010 for all major Eurozone economies is far in excess of that number. Greece (12.2 percent), Ireland (14.7 percent) and the U.K. (at 12.9 percent) are even in double digits.

As can be seen in the accompanying table, the average Eurozone deficit is projected to be 6.9 percent, more than double the agreed-upon limit.

Greece has reached a crisis stage and, as noted, its debt is now selling at a deep discount compared to other EU countries.

Ireland has a bigger deficit, but its total net government debt is only 38 percent, as contrasted with Greece’s 95 percent. But the Irish, unlike the Greeks, are instituting a credible plan to cut government spending and get their economy back on the growth track.
Country Debt and Deficit Forecasts

Forecasts (as % of GDP)
Country      2010 Budget Deficit Forecast   2010 Government Net Debt

France                    -8.2                                    -60.7
Germany                 -5.0                                    -54.7
Greece                     12.2                                    -94.6
Ireland                     14.7                                    -38.0
Italy                        -5.3                                      100.8
U.K.                          12.9                                    -59.0
Eurozone                 -6.9                                     -57.9
U.S.                          -9.6                                     -65.2
Japan                        -8.2                                       104.6

Sources: OECD, European Commission, CBO

The fundamental problem with most of the world’s largest economies is that they have allowed government spending to grow faster than economic growth, which can only lead to long-run economic disaster.

Many governments are proposing tax increases, but they cannot tax their way out of this problem because most of their tax rates are already above their long-run revenue-maximizing rate.

Further tax increases will only result in even slower economic growth and an increase in the underground economy, making the fiscal situation worse rather than better.

The responsible choice is a radical cut in government spending growth, with the alternative being economic stagnation or worse, likely coupled with a high rate of inflation.

Japan has tried to spend itself into prosperity by issuing more and more debt. Up until now, it has avoided inflation but has suffered a decade of economic stagnation, with a falling share of world gross domestic product, and the situation can only get worse.

The Obama administration and the Congress are in a headlong rush to push the country over the fiscal tipping point. The fiscal tipping point is the point where the interest that premium bond buyers are demanding to compensate them for the risk of default and/or accelerating inflation causes the total interest cost to be so high that the government is borrowing just to pay the interest.

This is equivalent to a family being so far in debt that it is borrowing just to pay the interest on its mortgage, credit cards, etc.

The proposed healthcare plan and the environmental cap-and-trade scheme will add trillions of dollars to the U.S. debt over the next few years and, in all likelihood, soon will drive the total debt burden to well over 100 percent of GDP.

Even if the administration were to tax the “rich” at 100 percent of their incomes, there would still not be enough money to pay for all of these spending schemes.

The following should be known to most members of Congress. The size of the U.S. government is already well over the welfare and economic growth-maximizing rate.

Taxes on upper-income Americans are well above the revenue-maximizing rate. Thus, for those in the political class to further increase the size of government and government debt as a percentage of GDP is grossly irresponsible. It is almost as if they had a death wish for the country.

Humans are quite good at adapting to climate change. Our species has already lived through hundreds of climate cycles. What they are not good at is adapting to the fiscal and monetary falsehoods of politicians. Yet, the politicians would prefer to fly around the world talking about climate change rather than putting their fiscal house in order.

Bond buyers are not stupid. They can see what is happening. If the administration and Congress do not soon reverse course, the cost of servicing the debt will quickly drive the U.S. to the fiscal tipping point.

Once the tipping point is reached, government will shrink one way or another, because there will be no way to fund the previous bloated state.

Who will be most hurt? Those most dependent on government.

More Thoughts on the Healthcare Follies

Friday, December 18th, 2009

A recent “Investor’s Business Daily” article provided very interesting statistics from a survey by the United Nations International Health Organization. So, after you peruse this, take a step back, consider the Senate and House “Healthcare” bills, and be careful what you wish for.

Percentage of men and women who survived a cancer five years after diagnosis:

U.S. 65%

England 46%

Canada 42%

Percentage of patients diagnosed with diabetes who received treatment within six months:

U.S. 93%

England 15%

Canada 43%

Percentage of seniors needing hip replacement who received it within six months:

U.S. 90%

England 15%

Canada 43%

Percentage referred to a medical specialist who see one within one month:

U.S. 77%

England 40%

Canada 43%

Number of MRI scanners (a prime diagnostic tool) per million people:

U.S. 71

England 14

Canada 18

Percentage of seniors (65+), with low income, who say they are in “excellent health”:

U.S. 12%

England 2%

Canada 6%

I don’t know about you, but I don’t want “Universal Healthcare” comparable to England or Canada. If you are lucky enough, or young enough not to worry about this, however, you probably have relatives who do, unless you are going to take care of them.

Moreover, it was Sen. Harry Reid, majority leader in the Senate, who said, “Elderly Americans must learn to accept the inconveniences of old age.” Oh, I forgot, he won’t have the same health insurance the rest of us have. He won’t have to worry about those “inconveniences”.

The Climate Change Follies

Sunday, December 6th, 2009

Well, here I am in a near western suburb of Philadelphia. It’s December 6, 2009. I look out my window and see a winter wonderland. OK, so the streets are clear and only lawns, trees, and houses are snow laden. But the temperature outside is 28 degrees Fahrenheit. And the forecast for the rest of the week is a high temperature in the low 40’s. Unusual, to say the least, for this time of the year.
So, is there really significant climate change produced by man made global warming? And does that question need to be answered in the light of “Climategate”–––– the scandal about hundreds of e-mails that were uncovered demonstrating an out-and-out effort by scientists across the globe to silence other scientists who disagreed with them on the doomsday prediction that global warming will lead to a catastrophe for human life on Earth. These scientists in the East Anglia Climate Research Unit(CRU) who feed the climate change data to the United Nations, attempted to blackball the anti-Global warming scientists whose questions about why the Earth has cooled over the past decade have gone unanswered. These CRU scientists also attempted to blackball any journals that publish these anti-Global warming articles.
The defenders of the CRU scientists say that no matter what these disturbing e-mail’s say, they represent the best climate science that indicates catastrophe is on the way, is man made, and that all contrary points of view should be excluded, and their proponents disparaged. But if their science is the “best science,” why have they felt a need to “rig the game?”
This is not science! Scientific data must be peer reviewed by objective reviewers who don’t have “an ax to grind,” i.e an enormous need to keep all the federal and non-governmental dollars coming to fund their laboratories and departments.
The public has every right to know what went on behind the scenes, and how the data was arrived at that produced the so-called “consensus” on global warming that the CRU scientists and their colleagues insist exists. And by the way, it appears that all the raw data on global warming from the mid-1980’s upon which so much of the computer models on climate change were based, was somehow destroyed!
I think the Copenhagen Conference needs to be canceled and everyone needs to go back to an “honest” drawing board before we destroy the American economy because of falsified or inaccurate data on global warming.

The Senate Healthcare Follies

Wednesday, December 2nd, 2009

I predict future happiness for Americans if they can prevent the  government from wasting the labors of the people under the pretense of taking care of them. – Thomas Jefferson

The senators are beginning a contentious debate over the Senate’s 2074 page Healthcare bill. It’s a terrible bill. Let me tell you why.
Healthcare in the United States is the best in the world. But it suffers from many inefficiencies. Therefore, it is expensive. However, this 2074 page Senate bill, as well as the 2014 page House bill, expands these inefficiencies enormously by adding hundreds of new provisions, regulations, mandates, committees, and other bureaucratic inventions. There are 118 new boards, commissions, and programs. All of these produce an overregulated, overbureaucratized, arbitrary, and inefficient system.
There are mandates with financial penalties, even jail time. Insurance companies are told exactly what to charge and are mandated to increase the premiums of the young to 50% of the premiums of the over 60 population. There are sliding scales for health insurance subsidies that will radically raise marginal income-tax rates for middle-class recipients.
The bill cannot be fixed. It cannot even survive on life support. It, and the House bill, should be junked, and both houses of Congress need to start all over again and do it right, one reform at a time, each simple, each aimed at reducing complexity, arbitrariness, and inefficiency. So, how can this be done?
First, tort reform. $500 billion per decade is wasted by exorbitant legal fees, and unnecessary tests, procedures, and referrals done merely to prevent law suits.
Second, abolish the prohibition against buying health insurance across state boundaries. Some states have very few health insurers and the rates are high. So why not promote Interstate competition? And this would eliminate the need for a public option that the Democratic Party wants as the first step to a single payer system.
Third, tax employer-provided health insurance. It creates a $250 billion annual loss of federal revenues. But, the unions oppose this and the Democrats cave in. However, these monies could insure the uninsured with plenty left over.
It would take 20 or 30 pages, not 2000, to write the bill containing the provisions outlined above. And it wouldn’t wreck both the United States health system and the United States Treasury. So, here is my Christmas wish list for Congress: Throw out the current bills. Develop a bipartisan approach to health care policy. And wake up the Democrats from their dream of controlling the health care system before that dream turns into a nightmare for the United States.

William S. Frankl, MD, All Rights Reserved