Tag Archives: Economics 101

Surprisingly, the government is a poor venture capitalist

Once again, the government (state of Rhode Island this time) is poor at picking winners.  Every private venture capital firm passed, but the state said, where do I sign?!?

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Obamacare will lead inevitably to single-payor

Speaking of Obamacare, not enough commentators are picking up on what seems to us as clear logic:  Obamacare will eventually lead to a so-called single-payor system, i.e., government provision of all health care.  Call it an intended consequence and probably a shrewd strategy for the socialists who know that single-payor is not politically viable yet.

The chain of events will go something like this:  Mandates on insurance companies to cover anyone at prices that the insurers don’t control will turn health insurers essentially into public utilities—with all of the responsiveness and innovation that we have come to expect from such enterprises.  Meanwhile, increasing costs, the “Cadillac tax,” and other burdens will cause more and more employers to drop their health insurance coverage.  A few years after the law is fully implemented, and most Americans despise the system, politicians will do what they do best:  throw more money at the beast.  When that doesn’t work, politicians will adopt another of their favorite tactics:  blame evil corporations.  The big health insurers and big employers have heartlessly failed to take care of their customers and employees, the argument will go, so only benevolent government can step in and provide for the hapless citizenry.  Americans, as we will have done for nearly a century by then, will accept this logic as the only solution.

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A USAID program we can support, for a change

We don’t mind the existence of the U.S. Agency for International Development, as long as its mission is seen as part of our national security apparatus.  On the contrary, almost all of its programs futilely ram government-centered bureaucratic “economic development” programs down the throats of third-world societies that are laughably unable to cope with them.  The result is, inevitably, utter waste, incompetence, and corruption.  (We once worked on a typically inept USAID program at the Ministry of Information and Communications Technology in Afghanistan in efforts to improve automation of government services—except that most government buildings lacked electricity and most government employees were illiterate in every language.)

Here is one decent example of a USAID program that seems to have the right goals:  creating alternatives to terrorism in the southern Philippines by training locals to work as call center agents.  It brings the added value of benefiting U.S. companies and maybe even exposing the area to some positive American cultural influence.

Predictably, leftists and protectionists decry the effort as undermining jobs at home.  Memo to the opportunist politicians who are slightly unattuned to business realities:  call center operators in the Philippines making $200 a month are not a threat to U.S. workers.  Those jobs are gone.

We can have a legitimate debate about whether the U.S. should be spending any money on such a program given our fiscal straits, but, if we’re doing to have a USAID at all, this seems like one of its better efforts.

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Ex-Im Bank seems like the perfect template for corporate welfare

We consider ourselves fairly well-versed in civics, but we were only vaguely aware of the Export-Import Bank.   So let’s get this straight:  American taxpayers subsidize loans for the worst major airline in the world, Air India, which is also bankrupt by the way, so that it can buy Boeing planes instead of Airbuses?  Why not just subsidize Boeing directly (not that we would advocate that), or just place boxes of cash in front of a Pratt & Whitney jet engine to be sucked in and shredded?

Ex-Im Bank seems to offer a trifecta of government ineptitude, corporate welfare, and protectionism.  (And this loan to Air India seems like bad industrial policy anyway.)  It must distort the market in multiple conflicting ways simultaneously.  Abolish it.

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Student loans: Corporate welfare for universities

Student loans, as any Economics 101 student (if they still teach that) would predict, drastically distort the market for higher education.  Subsidize production and supply will increase.  However, due to relatively inelastic demand, price (tuition) hasn’t gone down.  Instead, universities capture most of the surplus.  Tuition keeps skyrocketing­—it doesn’t really affect the very poor (who are subsidized anyway) or the very rich (who can presumably pay anyway), but it hurts everyone in the middle.  Taxpayers have been coerced into acting as effective co-signers for nearly every student loan in America, totaling $1T of outstanding liability according to a recent estimate by the New York Times.

Where does the money go?  Partially to fund more financial aid—raising the income threshold below which students don’t have to pay anything—but also to bloated university bureaucracies, boondoggle construction projects, and social programs on campus.

What a great business model universities have.  They get a steady flow of income from the government with a relatively inelastic demand for their product.  No one on campus is really accountable for anything, while special interest groups feed at the trough for their share of the pie.  There is nothing commercially-oriented about the way most campuses operate.  Yet somehow most universities are feeling a financial pinch—for the same reason as government is, namely, runaway spending.  Yet universities have absolutely no accountability if a student defaults on his loans.

It would be nice if universities evaluated applicants as credit risks (investments) like banks do in evaluating mortgage applicants.  But they don’t, because they have no reason to.  We agree with Alex J. Pollack on a relatively simple fix to reduce the distortions in the student loan market by giving universities a stake.

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