MUST SEE: Media Malpractice DVD

This is a rare opportunity to get a comprehensive look at various news outlets' treatment of an event over a several month period. I just ordered my copy of the DVD.

Click the image to see the trailer, get more info, and order the DVD.

Thoughts on embryonic stem cell research

1) Bush did not make embryonic stem cell research illegal, he merely ordered that federal funding would not be available for future embryonic stem cell lines, so that our tax money would not be promoting the harvesting of embryos. Privately funded research could still move forward.

2) My understanding is that embryonic stem cell research has been highly unsuccessful so far, resulting mosty in cancerous tissue, while adult stem cell research, which does not require embryos to be destroyed, has proved very promising. Although researchers have found a way to use adult stem cells to replace the need for embryonic stem cells, the flat-earth Democrats are still stuck in the past.

Government Spending

Every dollar that is spent by the goverment must first be taxed, printed, or borrowed. All 3 public revenue sources suck vitality from the private economy through reduced incentives for economic activity (taxed), increased inflation (printed), or reduced private investment capital (borrowed).

Obama Makes Up Health Care Stat

Is a bankruptcy really caused every 30 seconds by the cost of health care?

That is one of the outrageously misleading claims President Obama made in his remarks at his Health Care Summit yesterday.

I haven't had a chance to check out the others, but this one is patently false.

First off, lets calculate what this would mean. A bankruptcy every 30 seconds would mean approximately 1 million bankruptcies in a year. In the latest statistics on bankruptcies, the number grew from about 700,000 in 2007 to just over 1 million in 2008.

So to believe Obama's claim that a bankruptcy is caused every 30 seconds by health care costs, you would have to believe that 100% of bankruptcies are caused by high health care costs.

This leads to the question of what percentage of bankruptcies were caused by a major illness. Supporters of increased government involvment in health care like tax-dodging Tom Daschle have repeatedly claimed that about half of bankruptcies are caused by high health care costs.

The claim seems to be based on a Harvard study published in 2005 of over 1700 bankruptcies from 2001. The authors of that study, titled "Illness and Injuries As Contributors to Bankruptcy", very clearly intended to maximize the number of bankruptcies that could be claimed to have a medical cause.

The report is convincingly refuted by Gail Heriot, a University of San Diego professor of law, in 2005 right after it was published.

Even though the authors claimed that 54.5% of bankruptcies had a medical cause, buried in the report itself is the fact that only 27% of the bankruptcies even had unreimbursed medical expenses greater than $1000 over the 2 years prior to the bankruptcy!

Only 28.3% of those studied claimed themselves that their bankruptcy was substantially caused by illness or injury. The report failed to examine how many of those 28.3% actually had crushing amounts of medical expenses that could be considered the primary cause for the bankruptcy.

Careful examination of the study thus leads to the conclusion that no more than a quarter, and probably much lower, of bankruptcies in 2001 were truly caused primarly by excessive health care costs. Obama's statistic is off by at least a factor of 4.

You might say, "Well, even if it is 200 thousand instead of 1 million bankruptcies that are caused by bankruptcies, that is still a lot." True it is still a lot, but a further question is how many of the people that filed for bankruptcy had health insurance, and how many were uninsured, because only the uninsured would really be helped by universal health insurance coverage.

The fact is that the great majority of all bankruptcies are caused by lost wages, and the greatest effect that illness or injury has is in limiting the ability to work. This factor will not be fixed by more generous health insurance.

If Obama is worried about the number of bankruptcies, he needs to ask himself how many more Americans he will push out of work and possibly drive into bankruptcy when his oppressively higher taxes, which he will try to enact in order to pay for his health care proposals, hobble the economy.

Forbes: Repeal Mark-to-Market for Assets

Steve Forbes has been calling for Mark-to-Market to be repealed since before the financial crisis last fall. He repeats himself very convinicingly in the Wall Street Journal today.

Back when the $700 billion TARP program was being debated during the heat of the presidential campaign, Newt Gingrich was calling for Mark-to-Market to be based on a 3-year rolling average.

In the wake of the accounting scandals of Enron, WorldCom, etc. earlier in the decade, the Bush administration, along with Congress, tried to tighten up accounting standards. As part of this whole push, the SEC re-instituted Mark-to-Market accounting. The rule says that if you are holding something that drops in value, you have to reflect that loss of value in your net worth. For banks, this loss of value increases their capital requirements, the amount of cash on hand they must keep to meet their obligations.

So when the housing market started falling, any banks with Mortgage-backed securities had to start marking down their asset values. Because of the lack of transparency as to which MBS's were solid and which were in trouble, no one was willing to buy any of them and the MBS market collapsed. Regulators forced banks to mark their MBS's down by as much as 80%, even when the underlying mortgages had only dropped less than 10%. Banks were hit with the double-whammy of being unsure who it was safe to lend to as well as having their capital requirements dramatically raised. As a result, the credit market froze, and the wider economy soon began to be affected by the lack of credit. Businesses startups could not find funding, and existing businesses had trouble finding short term payroll loans, or loans for projects to expand their business.

Mark-to-Market does not make sense for troubled Assets whose underlying value has not dropped nearly as much as the short-term distressed value. It is pro-cyclical. That is, it increases banks' ability to lend when the market is going up, further inflating asset bubbles, and hurts banks' ability or willingness to lend when the market is going down, greatly exacerbating financial distress.

Mark-to-Market was finally discontinued in 1938 near the end of the Great Despression, after helping cause the financial crisis at the start of the Depression. It was just reinstituted in 2007, just in time to help kick-start this recession.

Steve Forbes also casts blame for removing the uptick rule on short selling, a practice where someone borrows a stock and then sells it, assuming the price will drop so they can buy the stock at a lower price to repay the original lender, pocketing the difference between what they sold it for and what they paid to buy the stock back. The uptick rule said that you could only do this after the stock price had risen, stopping investors from being able to artificially drive down the price of a stock by repeated short-selling. You can see that without the uptick rule, there is a perverse incentive for short-sellers to pick a stock and drive it down as much as possible.

Forbes also blames the SEC for not properly enforcing the rule against naked short selling, where a trader doesn't even bother to borrow a stock before short selling it. I have no idea how much this happened, but to the extent it did, it would drive stocks down.

From a political perspective, on these specific accounting and enforcement rules, you can fairly blame the Bush administration, but an equal amount of blame must go to Democrats and the Obama administration. I am not aware of a single Democrat that has called for a change to these rules. Only free-market conservatives have been talking about this. Democrats are too busy blaming "greed on Wall Street" to realize that bad goverment regulations and rules are 10 times worse.

This is much more complicated than who is for regulation and who is against regulation. Conservatives believe that a proper role of government is to ensure orderly markets and aggressively prosecute those who break the law and try to profit by illegal means. To the extent that smart & effective regulations are necessary to accomplish this, conservatives fully support regulation. But when regulations are unnecessary, don't make sense, reduce economic stability, or are economicly harmful, conservatives oppose them.

These are important rules at the heart of the financial crisis, and they are barely being talked about. If this isn't evidence of the need for a better medium to include all Americans in a more serious and constructive dialogue about the best way forward, I don't know what is. Instead, we get lost in all this nonsense of which politician said what, how long will Obama's popularity last, is the Republican party down for the count, etc. The coverage of the presidential election was 3/4 about the horse race (who was campaigning where, what the latest polls were) and only 1/4 about which policies were best.

WSJ: The Obama Economy

"The market has notably plunged since Mr. Obama introduced his budget last week, and that should be no surprise. The document was a declaration of hostility toward capitalists across the economy." see the full article

Bastiat: What Is Seen And What Is Not Seen

I cannot think of a better essay that should be read by all right now than Frederic Bastiat's What Is Seen and What Is Not Seen. His simple yet thorough examples are clear and understandable to the average person, and many are uncannily applicable to the current debates our coutry is having right now.

Bastiat was a French economist and statesman from the mid 19th century who led the fight against socialism at that time. He has the same unique ability that Milton Friedman had of taking complex economic issues and breaking them down into understandable terms.

I found amusing his exasperation at the end of the 3rd section in his essay which dealt with Taxes:

Good Lord! What a lot of trouble to prove in political economy that two and two make four; and if you succeed in doing so, people cry, "It is so clear that it is boring." Then they vote as if you had never proved anything at all.

Trust me, read it and I think you will gain a much better understanding of economics. Don't delay. Go read it now!