Reynolds on Obama Insurance Rate Increase Lie

Alan Reynolds, a senior fellow at the Cato Institute and the author of Income and Wealth has an interesting article that appeared in the Daily Caller on 15 March 2010 that looked into the Obama claim on 20 February that an evil insurance company in California was about to increase its premiums by 39%.  Obama has often repeated this claim since the 15th, including just yesterday in Congress, so he remains undeterred in his big fib, despite the corrective truth provided by Alan Reynolds.

As Reynolds noted, Bob Beckel, the Democrat political strategist, observed that Obama needed an enemy and the insurance companies were chosen.  Obama needed a for-profit insurance company to become the poster bad guy.  He picked Wellpoint's individual Anthem Blue Cross Blue Shield plan which had requested individual plan increases of from 20 to 35% from the insurance regulatory commission of California.  The total of individual plans is only 4% of the market, so few people are affected by rate changes for these plans.  If, and this is a very big if, the commission were to allow these requested increases, the only way anyone would have a 39% increase would have been to both choose a "gold-plated Cadillac plan" and move up into a higher age group.  These requests for rate increases are commonly denied or moderated.  Obama mentioned two that were denied in the same speech he claimed that a 39% rate increase was likely for the WellPoint individual plans in California.

A still more dramatic request for a 56% increase by a nonprofit insurance plan gained little attention.  Why is this?  Because Obama wants to put an onus on companies making profits.  He really dislikes the idea of companies making profits and he assumes that most other Americans do too.  So Obama griped that the $1.2  trillion health insurance industry had the five largest insurers make profits of $12 billion.  What he failed to note was that WellPoint had sold its pharmacy benefits management company NextRX to Express Scripts for $4.7 billion in April and this was included.  The real profit from ordinary sales of health insurance was then only $7.3 billion.

Mark Perry of the University of Michigan calculated that WellPoint's profit without the asset sale as 3.9%, which is hardly a great profit for any industry.  The industry average profit margin is 3% or about $100 per policy.  The Centers for Medicare and Medicaid Services (CMS) say that the cost of premiums minus the benefits paid fell by 2.8% in 2008.  It predicts that private health insurance will go up by 2.5% in 2010, but that medical goods and services will go up more, about 2.8%.  For the average purchaser of health insurance in 2008, premiums fell by 3.5%.  In 2009, they fell by a further 3.2%!

But no, Obama wants us to think that health insurance premiums will soon be out of everyone's reach unless the great socialist leader comes to our pathetic rescue. Reynold's concludes his article with:

The president's health insurance proposals hoped to use stern command-and-control techniques to run the health insurance system. It was all about minimizing free choice and maximizing brute force—forcing people to buy certain kinds of politically-designed insurance, forcing insurers to cover services many consumers do not want to pay for, and forcing insurers to curb or roll back premiums even as medical costs go up. The whole shaky apparatus was built upon even shakier statistics....

One would like to think that one should start with the assumption that a President of the United States is telling the truth, but that one should frequently check to be sure he is.  With our present illegitimate president, as demonstrated over and over with his incredible lies relating to the health insurance and jobs issues, it is only possible for a rational man to assume he is lying and check up on him just in case he has suddenly decided to live up to the responsibilities of his job.  There have been men who became better men once they became President, but there is no sign to date that Obama is now anything but the divide and conquer, lie and lie again rabble-rousing demagogue of the unskilled, uneducated, and unthinking.  It is amazing how many college-educated elitist-minded Americans agree with him and cheer him onward.

Reynolds - High Oil Prices Caused Worldwide Recession

Alan Reynolds is one of my most favorite economists. He has written another very good and very important article, It Didn't Start Here, which was published in the New York Post on 9 April 2009.

The recent G-20 meeting in London produced a consensus: The United States started and caused the worldwide recession. The United States should be humbled. Obama agreed. The Finance Minister of Germany, Peer Steinbrueck, said the Anglo-Saxon attitude in America and Great Britain had encouraged risky lending and investment practices due to "an exaggerated fixation on returns."

Reynolds says, "Hey, wait a minute folks, let's look at the data." Examine when industrial production first started declining in some countries. It began to decline in Canada in July 2007, in Italy in August 2007, in France in October 2007, and the Euro area as a whole in November 2007. Japan's production reached a peak in October 2007, though it had a one-month uptick in February 2008. The decline in the U.S. was in February 2008.

In January 2008, the OECD leading indicators were down from a year before by 4.1 points in Ireland, 2.8 points in Japan, 2.6 points in Korea, 2.3 points in Sweden, but only 0.8 points in the U.S. Stock prices are another leading indicator. Stock prices peaked in Japan and in the Euro area four months before they peaked in the U.S. and the U.K. in October 2007!

In the 4th quarter of 2008, real GDP was lower around the world than it had been 1 year before, but it had dropped by much less in the U.S. than almost anywhere else. The list is:

Taiwan, -8.4%
Turkey, -6.2%
Sweden, -4.9%
Japan, -4.3%
Singapore, -4.2%
Denmark, -3.7%
South Korea, -3.4%
Italy, -2.9%
Hong Kong, -2.5%
Great Britain, -2.0%
Germany, -1.7%
Mexico, -1.6%
France, -1.1%
U.S., -0.8%
Canada, -0.7%

So, how did the the failures of U.S. and British banks and financial institutions in September and October of 2008 cause the recession which had started in Japan and in Europe in January 2008?

The housing price boom and the low cost of borrowing in the U.S. and in Britain were problems, but they were also problems in a number of other countries. These problems developed later and many countries which went early into recession, such as Japan, Sweden, and Canada had had no housing booms. Reynolds points out that James Hamilton of the University of California at San Diego showed in 1983 that "all but one of the US recessions since World War Two have been preceded, typically with a lag of around three-fourths of a year, by a dramatic increase in the price of crude petroleum." Reynolds says the years 1946 to 2007 saw 10 dramatic spikes in the price of oil -- each soon followed by a recession. He also notes that in January 2008, he wrote that the US economy was likely to slip into recession due to the high energy costs no matter what the Federal Reserve did with respect to monetary policy.

The logical conclusion from this is that the U.S. was probably doing a whale of a job in diminishing the worldwide recession. Indeed, the dollar value of US imports did not start to fall until August 2008 and our purchases of consumer goods did not fall until September 2008. Strange that so many in the rest of the world are so eager to blame the US for this recession, including the very anti-American Barack Obama! It would be more logical to see the U.S. as the hero in these trying times.

Reynolds points out that Jagadeesh Gokhale, his colleague at the Cato Institute, noted that "the prolonged decline in exurban housing construction that began in early 2006 was a logical response to rising prices of oil and gasoline at that time. So was the equally prolonged decline in sales of gas-guzzling vehicles. And the US/UK financial crises in the fall of 2008 were likewise as much a consequence of recession as the cause: Recessions turn good loans into bad."

So, it would appear that part of the reason that existing home prices were shooting up was because new home building was becoming more expensive and few homes were being built, due to the energy crisis. The energy crisis certainly weakened the U.S. auto industry, which was making all of its profits and most of its income from SUVs, trucks, and large cars. When people were paying more than twice what they had been paying to fill their gas tanks, they became less likely to be able to pay more for home mortgages or to make payments on such new cars as they did buy. The banks came under increased pressure and the many high-risk loans that government had pushed them into became a real liability, albeit one exaggerated by the Sarbanes-Oxley mark-to-market asset evaluation requirement. Another gift from government.

So, what would a rational response be to minimizing such a future spike in energy costs, given that such spikes are the chief cause of recessions? For the U.S., it would be to allow oil and gas drilling in the Eastern Gulf of Mexico, as was approved by George Bush, but then immediately killed by Obama. It would be to open ANWR to drilling. A non-starter with our very foolish Obama. A rational response would be to sell off much of the excessive federal holdings of land in the western US and encourage companies to drill for oil and gas using modern good practices. When OPEC, which did cause the present worldwide recession, spikes prices upward, the US production facilities could run production at full output and hold down the price increases a bit in the U.S. This would help to moderate our future recessions.

What very irrational, shall we say, even insane policy are we following? First, the media and the government are blaming American banks and financial institutions for this recession, while claiming that this means they need to be be managed by our ever-perspicuous government. Second, they are using this to broadly blame Capitalism. Note that OPEC is a cabal of nationalized oil companies, which have nothing to do with Capitalism. Furthermore, Obama and his cut-throat gang are using this crisis as a means to cripple the fossil fuel energy industries in the U.S. One of the reasons the U.S. weathers the oil price spike caused recessions better than many other countries is because we have the world's greatest reserve of coal. We still use it to produce half of our electricity. Without it, we will be even more subject to the whims of OPEC and to the subsequent OPEC-caused recessions.

Do you suppose it is possible that the same impulse that causes Obama to bow to the King of Saudi Arabia, who is an important Islamic leader, is also causing him to make the U.S. itself more subservient to the Islamic Middle East for its energy supplies? Do not argue that Obama is going to replace our fossil fuel use with alternative energy sources. First, if it is done, it will be done by the free market far more than by government or any amount of community organizing and rabble rousing. Second, he is keen on destroying the American fossil fuel industries to the point that he is already doing this with no viable alternative energy replacements in sight. This man is a destroyer, not a creator.

Instead of characterizing this crisis as a financial crisis, let us remember to call it the oil crisis. We must also recognize that while OPEC has been primarily responsible for our post-WWII recessions, we can easily be the cause of future recessions by following policies designed to increase the cost of energy!