Reich: From Regulation to Restructuring

In the second article by Dr. Robert Reich that caught my eye recently, the good doctor is actually criticizing BO and his gang. BO is not being assertive enough and thus the problems that both BO and Reich want to “solve” are not receiving the best solution, according to Reich.


First, Reich addresses the failures in the financial reform bill in Congress. He reiterates the criticisms that I mentioned in my last blog, i.e., that banks are being subsidized to cover their derivative activity (amazingly he includes the AIG transactions, which were actually straight insurance purchases).

But Reich’s primary criticism is that the banking system is not being “restructured”. Reich wants the major banks to be broken up and prohibited from reaching a (unspecified) size. (I wrote about that issue in a previous blog where I pointed out the very drastic consequences for the U.S. and world economy.) His reason is that he does not want them to be “too big to fail”, and thus be bailed out by the federal government if, rather, when things go bump again. Reich is not willing to consider the notion that maybe the government shouldn’t be bailing out banks or anyone. No, he thinks that part is fine. He thinks that the government is “protecting” the economy by bailing out people. Reich wants to break up the banks. I liken it to wanting to play tinker toys with real world businesses.

He does recognize that there may be adverse competitive consequences for U.S. banks, but he brushes those objections aside. This part of his argument is very strange. He says, “…since when is it up to taxpayers to guarantee profitability at America’s largest banks relative to foreign ones?” But, the Dems have never suggested that they wanted to undercut American businesses. Their claims before have always been that their “solutions” for the American economy have been beneficial to all. Reich is propounding a new attitude, a new policy that says that American businesses, and thus its citizens, should be “restructured” in spite of the obvious disadvantage that results.

To further make his case for restructuring, he turns to the healthcare industry. He says, “Similarly, the underlying system of private for-profit health insurance is a key driver of America’s bloated and ineffective health care delivery. We can try to regulate it like mad, but no amount of regulation will cure this fundamental problem.” Similarly, in this case, the problem is the “private for-profit health insurance”. Again, we need restructuring, i.e., a single payer system, socialized medicine.

Regulation for Reich is an attempt to “mend” capitalism. Instead, “The only way to have a lasting effect on industries as large and intransigent as banking and health care is to alter their structure.” And he further lets the cat out of the bag, “That was the approach taken to finance by Franklin D. Roosevelt in the 1930s, and by Lyndon Johnson to health care (Medicare) in the 1960s.” The former maintained a depression that lasted over a decade and LBJ can be thanked for the current mess in healthcare in the U.S., which no one, either Democrat or Republican, is willing to admit. So, all of the past attempts to deal with capitalism’s failings have themselves failed.

Reich’s criticism of regulation, especially in the two industries that he is using as his examples in the article, is that lobbyists and the industries can wiggle out of the intended consequences. He says, “A regulatory approach allows for more bargaining, not only in the legislative process but also, over time, in the rule-making process as legislation is put into effect. It’s always possible to placate an industry with a carefully-chosen loophole or vague legislative language that will allow the industry to continue to go on much as before.” That is, the victims can try to make some decisions of their own and try to run their own lives and businesses. He says, “And that’s precisely the problem.” The problem is that there is some semblance of freedom. That is unacceptable.

The problem in the American economy, according to Reich, is structural. What is the structure now, in Reich’s view. It is capitalism. It is for-profit. It is what the bankers are doing, basically by themselves, without Reich’s approval. The solution is for the government to mold the structure of the economy. Mold the activities of the people. Mold the people themselves.

As I said at the beginning of the first of these two posts, Dr. Robert Reich is a Marxist economist.

This article is unusual for two reasons. He explicitly proclaims that the actions of government should not be considered for their benefit for the economy or business but should be taken in the face of adverse consequences. He is admitting that the left’s solutions should be taken regardless of consequences. Instead, he calls for sacrifice (my word) for the benefit of the “taxpayers”. Second, his demands that the economy be restructured signal a new strategy. Regulation is now something that will be regarded as merely a accommodation to capitalism and rogue businessmen. What is needed is structural change, changes that make the government the direct controller in the economy. Regulation tends to be set up in terms of what business can’t do or what it must do to assure safety or fair play or some supposed good. Reich’s articles are pushing the government to become the primary force in determining the make up of businesses and the economy. Next, it will be the five year plan.

My Return; Four Comments

Storms, cat sitting (my good friend, George), being sick – for way too long, and stuff have put me way behind. I haven’t touched this for weeks. I hope to get back to my efforts.



For today, let me hit a news story or two, err…four.


HEALTH CARE

Recent announcements from people who keep track of it put government spending on health care at almost 50% of the total this year and more than 50% next year. After that, especially with Medicare and then whatever BO gets into the system, government spending will soar!


What does this mean? You know already. More of the same annual inflation of the cost of health care, plus probable rationing, attempts at price controls (MA is approaching that now), and a lowering of the quality and quantity of health care in America. Because of the recession, the loss of our high health care standards will happen earlier than we might have expected. It is all interrelated, the economy and our quality of life.



RECESSION

Speaking of the economy, the recession is lingering. Yes, some have proclaimed the recession over. Maybe in some respects it is, but even then, it is a very marginal thing. I see no immediate reason to declare that our standard of living is recovering. In fact, it is just the opposite.


Now there are stories in the press that the economy will suffer a decline again very soon. You might say that it is good that the press is recognizing the failure of the approach accepted by both Dems and Republicans alike (does “Repub” sound like a nice fit with “Dems”?). You would be wrong. These “economists” who are forecasting renewed recession are doing so because the government hasn’t interfered sufficiently or in quite the right way for their taste. They want more government activity, in areas they think are important. How bizarre. The disconnect with reality is so severe for today’s “economists” that no level of failure will cause them to reevaluate their position.


As the decline in January of the housing market indicated, the stimulus programs that BO put in place are failing to get the economy going. In stead, the economy is still pretty much not going anywhere. Job losses have flattened, bank lending is still falling, and businesses are trying to do the best they can.



PRICE INFLATION

If BO does get some more of his programs in place I think that we will begin to see some more significant price inflation. He will be pumping massive amounts of money, new, made-up money (by way of selling bonds overseas or through the Fed), directly into the economy (as opposed to the method used when new money is created by the Fed via bank credit expansion), which will chase after the stuff already available, and prices will rise. We won’t be seeing the asset or commodity bubbles because bank lending is still declining. Price rises will confound everyone, including the Fed, and we may revisit price controls. We certainly will not see spending reductions from the Federal government for the next three years, even if the Dems lose a lot of seats in the coming election.



GLOBAL WARMING

I don’t write much about this because it is well covered by others and I don’t have anything new to contribute. I did see this on facebook, so I thought that I might mention it.


This was referenced by some conservatives as a good reply to the global warming croud. I’m not sure why. It may be a put up job. It certainly is a denunciation if you regard religion as wrong, but it is offered by the conservatives (?). It does take the science out of the global warming movement, which is a good thing. It doesn’t give any importance to the political aspect of the global warming people, which is their main objective.



GRAB FOR RETIREMENT ACCOUNTS

This subject should make you very concerned, if you have any significant amount of money in what are called qualified retirement accounts, i.e., IRAs (Roth or traditional), 401(k)s, Simple Plans, Money Purchase Plans, etc. The government, under the assertion that most investors are mismanaging their retirement assets, are suggesting that the funds be turned into annuities. Annuities give you a stream of income that lasts as long as you are alive.


The intention of the government is to move that money into government securities, i.e., bonds. Thus, it won’t matter what China or other overseas bond buyers do in the future, the government will have trillions of dollars to use from the retirement accounts.


There are many downsides to this plan for you, financially speaking. The biggest is that an annuity offers absolutely no protection form inflation. You are on a fixed income. But that, of course is a secondary point. Most important is their plan to forcibly separate you from your assets. Watch this carefully. If they get close to bringing their plan to fruition, you will want to pay the taxes and move whatever money you can to a non-qualified account. In the meantime, you will need to talk to your representation to stop it.


Like the attempt to subvert your health care, this attack on your retirement assets has personal repercussions on you. If you talk to make comments to the Treasury, I think that it is important to point out the principled and practical consequences on you, both moral and financial. You don’t want to lose this battle because the authorities did not realize that you feared for your financial health as well as your freedom. If they don’t care about your freedom, they still might be concerned about the other. We don’t know. Don’t leave out either issue.