Regulation Hurts the Little Guy

During Judge Gorsuch’s recent confirmation hearing, Democrat Senators expressed concern that Gorsuch did not display sufficient sympathy for ‘the little guy.’ If these Senators are really concerned about the little guy, however, why do they continue to support and expand the massive regulatory state that keeps the little guy down?

The fact is that regulation typically hurts the little guy. Regulation does this by raising the prices of goods and services. Sometimes regulation raises prices by stifling competition. Classic examples include telephone service and airlines prior to the 1980s. Regulation also raises prices by banning cheap versions of a good, often in the name of safety, leaving the consumer no choice other than a more expensive version.

This phenomenon was on vivid display when I visited Mexico a couple of years ago. In Mexico, the most common car on the road is the Nissan Tsuru, which is almost identical to the “B13” Nissan Sentra that was sold in the United States from 1991 through 1994. At first, I thought all those Sentras on the road were remarkably well-preserved specimens from over 20 years ago. But in fact, the B13 Sentra is still produced in Mexico to this day. Until 2011, it was the best-selling car in Mexico.

Nearly all Taxis in Cancun are Nissan Tsurus (B13 Sentras).

The appeal of the B13 Sentra is that it is pretty reliable, but most of all it is cheap. The car sells brand new for only about $7,000 or $8,000. Of course the car is very basic; you roll down the window yourself, and the car does not offer the most modern safety features such as side air bags or anti-lock brakes. Allegedly for safety reasons, the car cannot therefore legally be sold in the United States. A B13 Sentra purchased in Mexico also cannot legally be imported or registered in the United States.

Many Americans might like to have the opportunity to buy a brand new car for less than $8,000. Those people would typically be of modest means. You know, the little guy. But the government says, no, the car is not sufficiently safe.

Of course, the B13 Sentra was safe enough in 1994, but the government has since moved the goal post. And some people in the U.S. today are still driving B13s from the 1990s that are grandfathered.

More to the point, shouldn’t a free-born citizen get to decide how much safety he or she wants to purchase? In other contexts, people are perfectly free, as they should be, to take risks. For instance, some people like to go snowmobiling. Others increase their risk by taking a job on an Alaskan crab boat. Still others take their lives in their hands by following the government’s dietary guidelines. What sense does it make that a free-born person can choose to climb Mount Everest, but cannot choose to drive a B13 Sentra?

And now government regulation has finally caught up with the B13 even in Mexico. Nissan will be forced to halt production in May.

[Y]ou will no longer be able to buy a 25-year-old Sentra brand new anymore. And it’s all because of the meddling government.

Mexico recently passed new safety regulations, and without airbags or anti-lock brakes, those requirements spell doom for the Nissan Tsuru.

So farewell, B13 Nissan Sentra. You had a good 25-year run, and we will always remember you fondly. When you get to where you’re going, say hello to the original Volkswagen Beetle for us!

The safety regulations don’t just violate principles of liberty, they hurt the poor economically by adding several thousand dollars to the price of a car. The case of the B13 Sentra is instructive because it reveals just how cheap cars might be if not for government regulation.

The phenomenon is a general one; regulation almost always has the effect of increasing prices not decreasing them. For instance, one of the main reasons why health insurance is so expensive is due to regulations that mandate what the insurance must cover. State-level regulations require health plans to cover things that people don’t want or don’t need, like psychiatric treatment or post-natal care. The government effectively bans people from purchasing a cheap bare-bones plan. Instead of letting citizens decide for themselves, the government forces people to buy more health insurance than they want.

Rich people can easily afford the higher prices imposed by regulations. But for the poor, the cumulative effect of higher prices significantly degrades their standard of living.

I once had the misfortune of having lunch with someone who was a big fan of regulation. She was telling me the whole time how great regulation is for ‘consumers.’ She voted for Ralph Nader. Oh, and not so incidentally, she was rich.

Reminder: Low Prices are Good

As if to prove that economic fallacies never die, the E-Commerce Times recently published a piece calling for higher prices for TVs. And not just TVs–airplanes and automobiles too.

Yeah, the reason why this idea “sounds anti-consumer” is because it is anti-consumer. Making goods more expensive is not economic progress–just the opposite. Henry Ford revolutionized the auto industry by making cars less expensive, not more. Before Ford, a car cost more than a house. After eight years, Ford had cut the price by half. He did that by increasing productivity.

Artificially protecting jobs in TV manufacturing would have the opposite effect–it would lower productivity. The repetitive job a Chinese TV worker does for $3 an hour is not very productive; nor is the task very appealing to an American worker.

In 45 years under communism in Poland, all industries and jobs were protected, and not one firm went out of business. But productivity stagnated, and by the end of those 45 years, ordinary people had trouble acquiring even basic necessities like soap.

The purpose of economic activity is consumption, not labor. If we reoriented our economy to the goal of raising prices to protect jobs, we would all end up a lot poorer.

Low prices for goods are a blessing, not a curse.

Obamacare: Finally, a Journalist Asks the Right Questions

At this point it is now seven years too late, but a journalist finally asked the right questions about Obamacare. That journalist was Tucker Carlson, and he asked the man who should know the answers as well as anybody–Jonathan Gruber, the MIT economist who was the ‘architect’ of Obamacare.

Tucker Carlson Destroys Obamacare Architect Jonathan Gruber

Carlson specifically asked two good questions that go to the heart of what is objectionable about Obamacare. Here is one of them.

Why should I be forced to buy a plan that offers things that don’t pertain to me in any way?…They’re forcing people to buy things they don’t want and that don’t help them…things that do not apply and will never apply to me such as breastfeeding, prenatal care, substance abuse counseling…why should I have to buy those plans?

Indeed, one of the most objectionable, maybe the most objectionable, provision of Obamacare is that it empowers unelected federal bureaucrats to decide the terms of my health care plan–what it covers and what it does not cover. In a free society, the terms of my insurance policy should be determined through agreement between me and my insurance company. Gruber calls this a “small issue,” but it’s actually an outrageous encroachment on the freedom of the people.

After first dodging the question and forcing Carlson to ask a second time, Gruber offered the following response.

The answer is that basically as a society we have to decide what is going to define fair insurance.

This is another way of saying that people–you and I–should not be free to decide, and so ‘society’ should decide for us. But it turns out that the group of people who decide is not ‘society’ but rather those aforementioned unelected federal bureaucrats. Gruber’s response provides no rational justification for the policy, just an assertion of his belief that people should not be free to decide for themselves. Every time choices and decisions get taken away from individuals and turned over to ‘society,’ it means that the people have less freedom.

Why should it be necessary for ‘society’ to define “fair insurance,” anymore than for ‘society’ to define a “fair golf course,” a “fair gym membership,” or “fair supermarket shopping”? These are all just contractual relationships voluntarily agreed upon by buyers and sellers. Would Gruber propose that federal bureaucrats insure “fair” grocery shopping by dictating to supermarkets which products they should and should not offer for sale?

Carlson’s second fundamental question (although it comes up first in the video) is this one.

Who are the victims? Who’s been hurt by Obamacare?

This is a crucial question, because the great con run by the political class is that they talk only about the benefits of their policies but not the costs. They don’t want to talk about all the people who will be hurt by the policy, because those people might then wake up and go into political opposition.

Gruber in reply identified only two categories of people hurt by Obamacare: “the wealthiest Americans…the top two percent,” and young, healthy people who, prior to Obamacare, benefited from “a discriminatory insurance market.”

What Gruber means by “a discriminatory insurance market” is actually just “an insurance market.” In a free and efficient insurance market, policy premiums are priced according to the risk of the individual. Healthy people with healthy habits therefore pay less than people with unhealthy habits. That’s how insurance is supposed to work–the market prices the risk. Gruber, however, believes that having an actual insurance market is unfair. When it comes right down to it, he is fundamentally opposed to the idea of health insurance. That’s why Obamacare is NOT health insurance, but an abolition of health insurance. Obamacare replaces the insurance market with an elaborate government scheme for rationing care and redistributing wealth.

I’ve always said that a one-line argument against big government is that it always ends up rewarding bad behavior and punishing good behavior. And that is precisely what Gruber advocates. He thinks smokers should be taxed to subsidize non-smokers, that those who eat healthy and exercise should be taxed to subsidize couch potatoes who overeat. As the saying goes, if you tax anything, you get less of it, and if you subsidize anything, you get more of it.

But in any event, Gruber’s list of Obamacare’s losers is far too narrow. In no particular order, the list needs to include all those young white women who go to tanning salons, because Obamacare put a 10% tax on indoor tanning. Other losers include millions of people who purchase insurance on the individual market but who are not eligible for Obamacare subsidies. Those people have seen their premiums soar. And speaking of those subsidies, they consist of tens of billions of dollars of taxpayer money that are needed to (barely) keep Obamacare afloat. So really, the losers also include basically anybody who pays federal taxes. That’s a lot of losers.

Obamacare’s losers also encompass all those who cherish the Constitution and constitutional government. Because in order to save Obamacare, the Supreme Court had to re-write the Constitution by ruling that the government is free to regulate inactivity so long as the penalty is called a ‘tax.’

Gruber’s reaction to the point that Obamacare has created many losers was somewhat fatalistic.

As with any law, the law creates winners and losers.

Sure, but the idea of a free society is that political insiders–in this case, industry lobbyists and Congressional aides–shouldn’t be able to get together and decide to make me a loser.

Gruber is right that the law creates both losers and winners. But he neglected to mention one of the biggest winners from Obamacare: himself. The man has made hundreds of thousands of dollars off of Obamacare.

A Brief History of Government ‘Expertise’

The Huffington Post and its readers are in a tizzy over a poll showing that Trump voters do not trust government ‘experts.’

experts

Americans, particularly those who voted for Donald Trump, are skeptical of civil service workers and the concept that expertise is an asset for government work, according to the results of a new HuffPost/YouGov survey.

While 43 percent say they have at least a fair amount of trust in civil service employees who run federal government departments and agencies, 45 percent say they trust those employees not very much or not at all. Only about a third of Trump voters report trusting the civil service, compared with 64 percent who do not.

A 53 percent majority of the public, including 71 percent of Trump voters, agree that “Everyday Americans understand what the government should do better than the so-called ‘experts.’

Leftists think the article shows that people are stupid for not deferring to the so-called experts. The article’s comment threat is full of the usual leftist snark and sarcasm.

John Sawyer
Owner at CJS Macintosh Repair
That’s right! I want the best goddamn burger-flipper on the planet to repair my Porsche! See, I believe in experts! But the last expert mechanic I had work on my car, he was all snooty and everything! I’ll never make that mistake again!

Yeah, well, burger flipping and Porsche repair are services that are usually competently executed because they are provided by the market. The market, unlike government, only provides services that people actually want.

Government is nearly the opposite; instead of giving people what they want, modern government is mostly about stopping people from doing what they want. And that’s the problem. Nobody is qualified to decide for you or me how we should live. The so-called experts can never know more than you do about how you should live. The difference between the government expert and the auto mechanic is that one does only what I pay him to do, the other is paid to tell me what to do. Big difference.

And so the crux of the problem is that the government’s so-called experts are deciding things they shouldn’t even be involved in. People who have never so much as run a hot dog stand are telling business owners how to run their businesses; they’re telling banks how to lend. The government ‘experts’ are deciding how much water your toilet and shower and dishwasher are allowed to use; they’re even deciding how much health insurance you have to buy.

They shouldn’t be doing any of these things. And that is why they fail.

This idea that we can solve all our problems if only we can get enough expertise in government dates back over 100 years, to the Progressive Era. The record since then, however, is one of unremitting government failure. Let’s just quickly review the history of massive fails by government ‘experts.’ A complete history would fill volumes, but here are just a few notes off the top of my head.

The Federal Reserve Act of 1913 created the Fed for the express purpose of protecting the banking system from the effects of bank panics. Instead of doing its job, the Fed in 1930-33 allowed three huge panics to devastate the banking system. Some 9,000 banks, half of the total, collapsed. As a result, what might have been an ordinary recession lasting one or two years was turned into the decade-long Great Depression.

Since the Fed failed to stop bank panics, the experts had to turn to a different solution: deposit insurance. That did solve the problem of bank panics, but at the cost of removing market discipline. The unintended consequences of deposit insurance helped to bring about the Savings and Loan Debacle of the 1980s, which wiped out the government’s insurance fund for thrifts, the FSLIC. The resulting taxpayer bailout cost about $250 billion in today’s dollars.

The Fed was also instrumental in inflating a financial and real estate bubble that lead to the Great Recession of 2008-09. In fact, one can argue that the Fed bears primary responsibility for all four of the most severe economic contractions of the last 90 years: 1930-33, 1937-38, 1981-82, and 2008-09.

During that real estate bubble, government experts encouraged lenders to give out sub-prime mortgages like Halloween candy. Government experts said it was perfectly fine for Fannie Mae to be capitalized at only two percent, because mortgages are such safe assets.

To stop people from drinking during Prohibition, government experts decided to add poison to industrial alcohols. As many as ten thousand Americans were poisoned to death.

Experts at the Food and Drug Administration have created a “Valley of Death” process in which it takes 12 years and 1.2 billion dollars to get a new drug approved. Over the decades, perhaps hundreds of thousands of Americans have died while waiting for treatments delayed by FDA ‘experts.’

The Department of Agriculture, the Surgeon General, and other government experts told us for decades to avoid saturated fats, and instead to consume grain-based carbohydrates. Goodness knows how many lives were lost because of that misguided dietary advice.

Right now, government experts are busy trying to regulate plant food (carbon dioxide) as a pollutant. They’re trying to regulate electronic cigarettes as a tobacco product, even though e-cigs contain absolutely no tobacco.

It’s the Holiday Season, and American troops will soon be celebrating Christmas in Afghanistan–for the sixteenth time.

Can’t imagine how Trump voters lost their faith in government experts. Silly rubes.

problem_solving

The Trouble with Propaganda…

…is that it doesn’t work if the public has access to alternative voices that can contradict the lies. That’s why totalitarian states always have to couple propaganda with ruthless censorship.

This election year, Democrats got their usual billion dollars worth of in-kind contribution from the legacy media, but it wasn’t quite enough to drag their candidate’s felonious and diseased carcass across the finish line. As a result, they are now trying to restore the effectiveness of their propaganda machine by silencing alternative voices. And so, leftoids are organizing a boycott of Breitbart media. Unfortunately, they seem to be having some success as they got Allstate and Kellogg to pull advertising.

prop

Some are also claiming that Apple pulled the Breitbart app from its app store, although I have not been able to confirm that.

It certainly says a lot about leftists that they would rather shut down the debate than try to win it. Their actions do reflect fragility and lack of confidence in their arguments. If they thought their arguments could win the day, they wouldn’t be nearly so keen to suppress speech.

Look, I am not the type of person who seeks to politicize every aspect of life. I work with, and do business with, people who don’t share my political views. But the theory of games teaches us that tit-for-tat is generally an effective strategy. If the left wants to play the boycott game, then GAME ON. There are a couple of Kellogg products that I’ve been purchasing on a fairly regular basis for years. But no more. I don’t currently have Allstate insurance, and I’ll be sure to keep it that way.

Gotta laugh when campus pinks try to argue that corporate America is conservative. That’s a good one.

No Need to Worry about ‘Peak Oil’

‘Peak Oil’ is the theory that, as oil becomes more scarce, at some point in time production of oil will start to fall, and decline forevermore. The originator of the theory, M. King Hubbert, predicted in 1956 that U.S. production would decline after 1970, and world production after 2000.

In 1978, an environmental group spent a lot of money to place a full-page ad in the Wall Street Journal claiming that within 9 years, that is, by 1987, the world would completely run out of oil.

Nearly 30 years later, U.S. and world production have risen dramatically, and proven reserves are at all-time highs. Planet Earth apparently contains massive amounts of oil, and nobody really knows how much. Just this week, news broke of the discovery of the largest oil field in U.S. history.

Federal surveyors announced that the Wolfcamp shale in the Midland Basin portion of Texas’ Permian Basin now holds the record for most oil, natural gas, and gas liquid deposits that are “undiscovered, technically recoverable resources.”

The USGS notes that within its survey spanning from north of Lubbock to remote regions southwest of San Angelo, an estimated and previously unaccounted for 20 billion barrels of crude oil; 16 trillion cubic feet of natural gas; and 1.6 billion barrels of natural gas liquids are able to be extracted by means typically involving slant drilling and hydraulic fracturing, commonly known as “fracking”…

A government spokesperson underscored the historic nature of the finding in a release.

“The fact that this is the largest assessment of continuous oil we have ever done just goes to show that, even in areas that have produced billions of barrels of oil, there is still the potential to find billions more,” said Walter Guidroz, for the USGS Energy Resources Program. “Changes in technology and industry practices can have significant effects on what resources are technically recoverable, and that’s why we continue to perform resource assessments throughout the United States and the world.”

“It’s no surprise that Texas has massive oil fields, but these new findings from USGS are jaw-dropping. Fracking and horizontal drilling have turned the United States into a global energy superpower, and the untapped potential in the Wolfcamp means we won’t be surrendering that status any time soon,” group spokesman Steve Everly said. “For the few remaining advocates of ‘Peak Oil,’ this certainly isn’t their lucky day.”

At current prices, the new oil discovery is worth approximately $900 billion.

And yet, despite massive and growing world reserves, many people still argue that we need to impose austerity upon ourselves in order to ‘save oil for future generations.’ Check out the following hilariously bad advice.

One needs to take all the steps in order to lessen the impact of oil prices. Use oil only during major necessity. The citizen and the government must also be actively involved in these efforts. Try to use oil effectively without wasting the same. Some very small ways to save oil is to use bicycles instead of motor cars for short distances to save oil. Not only does it save oil, but it also helps to reduce the pollution in the atmosphere and maintains the ecological balance. People from the same organization can opt for the choice of car-pooling. Only use your vehicles at times of need and try and prefer using buses or for that matter, trains to reach your destination.

To save oil, one must have an idea about the traffic rules and act wisely when driving. It is better to switch off an engine when caught in the traffic signals. The modern inventions in technology have made people turn towards solar vehicles that use the sun as major source, and it is one of the best processes to avoid excess usage of oil. To save natural resources, some vehicles use bio-gas and battery. Try to use products that have high composition of ethanol to serve the vehicles for longer duration. [Emphasis added.]

Switch off your engine while stopped in traffic! Good lord.

When will Peak Oil finally arrive? Two hundred years from now? The idea that we need to worry about using oil is like the Vikings 1,000 years ago worrying that if they used too much wood, future generations would not have enough wood.

When Mexico is Freer than the United States

One of the striking things I noticed when I traveled to Mexico a couple of years ago were the ‘taco ladies’ selling homemade tacos on the street corner. The ladies apparently make the tacos at home in their own kitchen, then sell them out of a cooler placed on a folding table. I bought these tacos on several occasions and they were tasty and cheap.

the queue in front of a Mexican taco lady

the queue in front of a Mexican taco lady

When I was buying the tacos, however, I knew that I was engaging in a transaction that could never happen in the United States. In the U.S., selling prepared food always requires licenses, periodic inspections by the board of health, etc. If the ‘taco ladies’ tried to set up their coolers and folding tables on the other side of the border, they would quickly be arrested.

And that’s really sad, because there’s no reason why taco ladies shouldn’t be able to do their thing. When I was buying tacos in Mexico, I was pretty sure those tacos weren’t in any way certified as safe by the government. But I had no fear that the taco ladies would poison me, and in fact they didn’t.

Reader Justin DelPrince brings to our attention a recent story about a lady in the U.S. being arrested for selling homemade food. The story highlights the absurdity of U.S. law, but a possible undercurrent to the story is a clash of cultures, since the lady seems to be of Mexican ethnicity.

Mariza Reulas, a single mother, is going to trial and could be sentenced to a year in prison for selling a couple bucks worth of a homemade dish—her Mexican ceviche—to an undercover police officer.

Editorial note: Ceviche, sometimes spelled cebiche, is actually a dish from Peru. It has spread beyond Peru, however, and become popular throughout Latin America.

Reulas, who hails from Stockton, California, is part of an informal potluck group on Facebook, where people who like to cook can trade recipes, cooking tips, and occasionally dishes. It’s not uncommon for a someone to offer a small amount of money for an equally small amount of food, says Reulas.

According to Fox 40, someone in the Facebook group offered to buy a plate of Ruelas’s signature ceviche, a Mexican seafood fish. That person was an undercover cop carrying out a sting: twelve potluck participants were arrested for selling food without a permit.

Reulas refused to please guilty and accept a lesser sentence—probation—so her case is headed to trial.

Libertarian reporter Robby Soave defends Ms. Reulas’ actions as follows.

There’s a world of difference between operating an illegal business and occasionally accepting some kind of compensation in exchange for a plate of food. The latter is none of the government’s business.

Personally, I would go even further and say that she doesn’t deserve to be prosecuted even if she had been trying to make a business out of selling food.

Set the taco ladies free!

Sad News: Libs Unable to Flee from America

One of the more amusing phenomena of every US election year is the parade of shitlibs declaring that if the GOP candidate wins, they will leave the country.

According to at least one poll, 28% of Americans have at least considered leaving the United States for good “for a country such as Canada” if Trump is elected. Of those who said they’re considering fleeing, 14% rated the probability as “very high”. Google searches for the phrase “move to Canada” spiked dramatically after the Super Tuesday primaries in March put Trump into the lead, hitting levels never before seen.

Unfortunately, it’s not so easy to rid America of shitlibs. Most of them are not serious about leaving, but even those that are serious would be in for a rude awakening once they find out that no one will have them. In point of fact, it is difficult or impossible for most middle-class Americans to migrate out of the country.

I suppose Americans can be forgiven for thinking that, just because the US has a porous and broken immigration system, the rest of the world does too. But the fact is that immigration requirements are strictly enforced almost everywhere in the world. In order to win admission, you’d have to either be rich or have a universally marketable credential, like a medical degree. You and everyone in your family would also probably need to be free of any pre-existing medical condition.

Consider the case of Canada, a favorite destination because it is geographically close and English-speaking.

Out of curiosity, I decided to see whether I’d qualify for the Canadian equivalent of a green card. My fluency in French, the fact that I attended a Canadian university and have family in Canada help, but without a job offer from a Canadian company or skills in demand in Canada, I’d be rejected. Go ahead, see how you’d fare.

Many Americans will find it tougher to win admission to Canada than they assume. Then, too, there are some Americans that Canada won’t want, including, sadly, those they feel will be too much of a drain on the country’s single-payer healthcare system. A university professor from Costa Rica, Felipe Montoya, recently was denied permanent residency in Canada because his son has Down’s syndrome.

It’s true that Germany last year admitted a million new ‘migrants.’ But those were people claiming to be ‘refugees.’ If you’re not claiming refugee status, you’ll have to have an employer in Germany who will sponsor you, and the German government doesn’t make it easy for that employer to do so. The employer is going to have to want you badly because of some rare skill you possess. This, of course, underscores the insanity of Germany’s system. Completely uneducated and unskilled economic migrants from North Africa and the Near East can get residency by claiming to be refugees, even if they aren’t. But an American educated professional with job experience will find getting residency much tougher.

Notwithstanding the fact that the US seems to resemble a bus station for everyone in the world, in the rest of the world it is generally not possible for ordinary people to relocate across national borders. There are a few exceptions, of course, such as the countries within the European union. Various EU treaties have made it relatively easier for EU citizens to move to different countries within the EU. But that’s a privilege reserved only for EU citizens, not Americans.

Historically, all this border enforcement is a relatively recent phenomenon. As recently as the 19th century, nearly all borders, including the US borders, were unsecured, and people were completely free to cross at will. But that was only the case because, in those days, hardly anybody could migrate because travel was so difficult. There were no planes, trains, cars, or paved roads, and most people never in their lives traveled more than 20 miles from the town in which they were born.

Starting in the late 19th century, a lot of people did migrate to the US by ship, and the US was willing to accept them because the vast continent was still mostly empty. But after two or three decades of mass immigration, in the 1920s the US brought most immigration to a halt.

The bottom line is that most ordinary shitlibs aren’t going anywhere, even if they wanted to. That’s why it’s particularly galling when rich celebrities like the execrable Amy Shumer declare they’ll emigrate in response to a GOP victory. Unlike the rest of us, rich celebrities can actually emigrate, and by declaring they’ll do so, they’re flaunting their privilege. It’s really quite distasteful.

Death by Regulation: Organ Transplants

Federal law prohibits people from selling their organs. You can donate, say, a kidney, any time you want. But for you to receive any compensation is illegal. This law effectively imposes a price of zero on organs. That price is lower than the price that would clear a free market in organs. The resulting shortage of organs costs thousands of lives every year.

Lifting the prohibition on organ sales could not only save thousands of lives, but would give poor people an opportunity to make money. Selling a kidney might keep an unemployed guy off the street and put him in his own condo.

But the privileged elites who run America say no.

organs

Source:

without-limits

Plutocrats Plotting Payroll Tax Hike?

Key elements of America’s ruling class think you’re not giving enough money to Wall Street, so they have a plan to force you to give more. The so-called James-Ghilarducci plan would force workers to pay a new three percent payroll tax to fund a personal retirement account to be managed by Wall Street firms. The cost to workers would be partially offset by a tax credit of up to $600, and the government would (somehow) guarantee at least a 2 percent annual return, regardless of market conditions.

The plan is being pushed by Blackstone president Tony James, who just by coincidence also happens to be raising millions of dollars for Hillary. As a result, Hillary’s top aides are reportedly warming to his plan.

You have to be a fool to think that James is doing this out of goodwill and public spiritedness. The plan promises to provide firms like his with a huge spigot of cash for accounts on which the firms will charge lucrative fees.

Right now, laws prohibit retirees from investing 401(k) balances in risky and sometimes opaque ‘alternative investments’ offered by hedge funds and private equity firms. Maybe that restriction should be lifted, but James’ plan forces savers to participate.

Chris Tobe, a Democrat who advises institutional investors and who served on Kentucky’s pension board, put it just as bluntly: “James’ plan is a deliberate attempt to get around federal protections for retirees because alternative investments are not generally allowed in the 401(k) world. This is about making Blackstone and other private equity firms even richer than they already are.”

The most objectionable aspect of the James-Ghilarducci plan is its coercive nature. The retirement accounts would be mandatory, and workers would be forced to pay a new three percent tax. A typical household making $60,000 per year would have to cough up $150 every month. Maybe you had other plans for that $150, but the plutocrats have decided they know better; you have to hand the money over to Wall Street.

Worse, under the plan, individuals don’t even get to decide how their own money shall be invested. People can’t choose for themselves how to allocate their own portfolio. That will be decided by the plutocrats.

Under their proposal, “Retirement portfolios would be created by a board of professionals who would be fiduciaries appointed by the president and Congress,” James and Ghilarducci wrote in a New York Times editorial.

James is trying to sell the plan by promising real returns of 6 or 7 percent. In an economy that can’t manage even 3 percent growth, that promise is simply not realistic.

[E]conomist Eileen Appelbaum told IBT, the James-Ghilarducci plan is built on earnings projections that are fanciful.

“The plan’s promise of 6 to 7 percent returns is likely to prove unrealistic, and they fail to discuss the risks inherent in the risky investments that would have to dominate the savings portfolio that could yield such returns,” said Appelbaum, who co-authored the book “Private Equity at Work” and published a study suggesting lower private equity returns are a new normal.

“This proposal is about Wall Street getting more assets under management because that is where they make their money,” she said.

I also fail to see how government could conceivably guarantee the balances. The tax would generate something like $300 billion per year flowing into the new accounts. After one or two decades, the accounts would contain several trillion dollars. And these funds would largely be invested in assets that are relatively risky. In fact, investing in riskier assets is the whole point of the plan, which is to open up risky asset classes that are currently unavailable to 401(k)s. If we experience a crash like we did in 2009, and asset prices fall by 50% or more, the government would be on the hook for trillions in bailout money. Where would that money come from?

The other problem with the plan is that it would increase corruption by furthering ties between Wall Street and government. Wall Street would benefit from a steady source of cash, but the political class would get to dictate the terms of the deal to Wall Street. The government would decide how much Wall Street could charge in fees, and maybe even which firms could receive the cash. Government influence might also politicize the allocation of credit, which in the long term would impair the efficiency of financial markets and the growth of the economy.

What will happen, of course, is the same thing we saw with health care and pretty much every other part of the economy these days. It will be a bust out. The billions that pour into these new funds will be “invested” in things that benefit the rulers. Politicians will get advance notice on some new move so they can cash in their privileged status. The fund managers will kick back a piece of their rake to the politicians for the right to manage these funds. It will be systematic robbery of the middle class.

Will the plan be enacted? Hillary has not been campaigning on it, and when asked to comment on the article excerpted above, her campaign declined. So they won’t even talk about it. But if they don’t talk about it now, during the presidential campaign, then a future Clinton administration will have no political legitimacy for imposing it on the people. A policy change this significant should be debated during the campaign so that voters can have their say. To keep quiet and then spring the plan only after the election would betray the principles of representative democracy. That’s not to say it won’t happen, but if it does, it would be politically illegitimate.