PrintMarch 29, 2010
Capping Insurance Rates: Engineered Chaos
Attempting to control prices is like trying to control rain: It cannot be done, and those who try will get wet. That's why President Obama's new proposal to cap insurance premiums should be viewed with suspicion.
Governmental price controls never work. In the seventies during the oil crisis, Nixon and Carter spearheaded substantial wage and price controls aimed at hedging the U.S. economy against rampant consumer price inflation and mass layoffs. What happened? Domestic oil companies simply stopped producing oil to shield profits from the price caps. This reduced available supply as consumption continued to increase, causing a spike in prices. More expensive imports continued to displace domestic oil suppliers, and hyperinflation became the norm.
Price controls failed to achieve their stated purpose. In fact, it can be argued that they even hastened the hyperinflation dreaded by policy wonks of the day.
And what about the wage controls? Did those work out? As can be expected, as prices increased, so did the incentive to lay off workers. Employers couldn't afford to maintain then-levels of employment due to the artificially high salaries at a time of more expensive capital inputs. And Jimmy Carter's stagflation was born.
For another clear example of the unreliability of wage/price controls, we can go back further to the Depression-era Hoover administration. President Herbert Hoover was out of his depth, much like Jimmy Carter the peanut-farmer. Hoover, in a foolhardy move aimed at saving the American standard of living, pleaded with businesses to freeze wages. At the same time, Hoover raised taxes on producers to over fifty percent of income. Businesses complied with Hoover's request. To account for the large tax increase and the accompanying wage freeze, businesses simply slashed payrolls. That's what business does. Businesses exist to make profit, not to provide Americans with cushy lifestyles. When a business goes into debt, it can't call the Chinese or print money. It must sell inventory or lay off workers. But the idea of a bottom line is a hard concept for many in government to grasp.
The insurance industry supports a full 2.3 million wage and salary jobs as of 2008 and accounts for nearly $700 billion in annual GDP. With manufacturing now a pitiful 11 percent of economic output, financial services are the bedrock upon which American prosperity is built. For every dollar that circulates in the regular American economy, fifty dollars circulate in the world of pure finance [1]. So, then, why would President Obama want to do something historically damaging to economic productivity to one of our nation's most crucial industries at a time of heightened economic strain?
President Obama has demonstrated time and again that his economic policies are not really about stimulating the American economy or boosting employment. Whatever the president's stated agenda, it is not consistent with the good of the America people. Obama has repeatedly called for tax increases (despite his campaign pledges) even when he has publicly acknowledged that such a move would be detrimental to the economy.
In fact, camouflaged in the mammoth health care bill that Obama just signed is a tax increase of gargantuan proportions. When the Medicare and Income surtaxes in the health care legislation are added to current state taxes, the top tax rate rises to over 50 percent in many cases. A tax increase this dramatic hasn't been seen since the Hoover years in the lead-up to the Great Depression. It failed when Hoover tried it, too, deepening the national economic crisis, sending unemployment upward, and reducing GDP. Obama knows this. Obama even promised not to raise taxes as long as America was in the middle of an economic crisis. Therefore, Obama's actions must be seen as the behavior of a man who desires crisis, who desires economic devastation.
Even circumstantial evidence like the failed stimulus bill supports this conclusion. Unemployment has increased since the passage of the lauded stimulus bill. After a $500-billion shot in the arm, how can jobs have been lost? The answer is simple: "Shovel-ready jobs" are never a replacement for long-term employment. FDR attempted to structure the entire American economy around shovel-ready jobs. What happened? When the tax dollars dried up, so did the jobs. World War II was the ultimate salvation of the American economy.
Public-sector employment depends on the continuing existence of a vibrant private sector generating taxable GDP. That's why Sweden, socialist paradise and leftist darling, is now pursuing mammoth tax cuts, reversing years of tax-and-spend policies that have been the hallmark of Sweden's obese welfare state. Businesses are leaving Sweden. Ironically, to retain businesses to tax, Sweden must first cut their taxes.
It's time for us to apply what we've learned from such obvious lessons. We need to let economic chaos run its course from time to time and not attempt to close the gap with government intervention.
Jobs will be lost if and when President Obama is allowed to transfer the power of adjusting insurance premiums to government. Government can never do a better job than the private sector. The $10-trillion national debt and some $54 trillion in federal liabilities are testaments to this fact.
One thing is clear: Liberals don't want what they say they want.
So, then, why the big push? Why does the left raise taxes when Presidents Kennedy, Reagan, and Bush have proven that lower taxes yield more revenue [2]? Their tax hikes are about one thing, and one thing only: control. Why did the left push so hard for socialized medicine when citizens of other countries with universal health care are coming to America for treatment? Control. Why does the left constantly oppose private retirement accounts for those who would rather take their tax money from the Social Security system and place it in more productive investment vehicles? Control. Why does the left transfer the power of setting pay from the private sector to the Treasury Department? Control. Why does the left pass credit reforms that punish consumer purchasing decisions? Control. Why does the left support federal bailouts of ailing newspapers? Control.
We know what President Obama thinks: "Only government can provide the short-term boost necessary to lift us from a recession this deep and severe. Only government can break the cycle. ... "
Only government can destroy America so quickly.
