Chadwick's Corner

I encourage you to read the op-ed piece by Governor Bobby Jindal (R-Louisiana) in today’s Wall Street Journal.  Just go to www.online.wsj.com and click on Opinions and it will be there (FREE).

It is a thoughtful and absolutely spot-on commentary.  It reads like a speech from a possible Presidential candidate in 2012.

Just two days ago, the New York Times heralded on its front page “Health Care Bill Passes First Test on Capital Hill”, a title that belied the fact that the health care bill as currently structured has almost no likelihood of becoming law.  Moderate Democrat Senators have no stomach for it, because their constituencies have no stomach for it.

This morning’s Wall Street Journal’s front page headline signals the more likely path for the bill “Budget Blow for Health Plan”, a story that the New York Times has relegated to page 12 (page 3 of the National news section of the paper).  When the Director of the Congressional Budget Office (CBO) contradicts the statements of Congressmen/women and Senators, trouble is brewing, and that is exactly what Douglas Elmendorf has done.

This is so reminiscent of 1993, the last time a massive attempt was made by the Executive branch of the Government to foist a national health care plan on the country.  Back then also, it was the CBO director who informed Congress that the bill would cost far more than the pollyanish estimates espoused by Democrats in Congress and the White House.

Maybe with this most recent news, it is not so brave of me to predict that the current health care bill will not pass both Houses of Congress and will not be signed into law.  Of course the cost is a key variable, but behind the inability of the Government to control costs is a very significant fact – the Government is unwilling to confront tort reform head on.  The plaintiffs’ lawyers lobby must be the most powerful in the country – perhaps not surprising, given the fact that over half of the Senators are lawyers, more than one third of Congressmen are lawyers and the President himself is a lawyer. 

It is true that medical technology has done much to both increase productivity in medicine, but it also has acted to increase costs.  Much of the testing, imaging, retesting, and second and even third opinion requirements are done in order to provide defense backup in the event of a lawsuit against a doctor.   Time was when the priest/minister/rabbi was the most revered person in the town, with the local house-calling doctor right on his heels as number two.  Gone are those days. 

Today doctors are obliged to pay exorbitant insurance premiums to protect themselves from ambulance chasing, greedy plaintiffs’ attorneys who advertise shamelessly on radio, billboard and television.  Until and unless our Government – on the national level – passes a seriously effective tort reform legislation and the President signs it into law, there is no way Congress should even broach the subject of a national health care plan.  It is their moral obligation.

With Governor Sanford in political Siberia and Governor Palin perhaps following him, Governor Mitt Romney should be smiling.   Lots of things are going his way. 

As the Federal Government increasingly grabs oversight of giant sectors of the economic pie – banking, insurance, automobiles, health care, and energy – we are heading towards the destruction of the economic structure and the free spirit that have for the last few hundred years been the source of growth and prosperity in this country.  The Government by its very nature is a not-for-profit organization, and an economy that is run on a not-for-profit basis will be a failure.

But in a Government managed economy, there are no profits to use for reinvestment which means that the Government must resort to taxes as its resource.  Raising taxes, particularly in a deep recession, will only impede recovery, leaving our economy with

high unemployment and anemic growth.   

By the spring of next year, the political focus will be on the House and Senate races that will say a lot about how people really feel about the economy.  And following on the heels of the November outcomes will be the start of the 2012 Presidential race. 

If the economy is still in limbo a year from now, Mitt Romney will have the opportunity of a lifetime.  He understands economics; he knows how industry and business should work to thrive; he has had both private and public experience; he even studied and signed into law a health care system, and he will be able to talk to its strengths and weaknesses, what it can do and what it cannot do.

In all the political kerfuffle unfolding today, Mitt Romney is one of the few potential candidates who has gravitas – no sexual scandals, a few grey hairs, a total lack of demagoguery, confidence but not arrogance, an ability to lead successfully and an understanding of the sanctity of the private sector in this country.  Those attributes should stand him in good stead when the 2012 Presidential campaign starts to unfold in barely more than a year from now.

I went to the mall yesterday to try to gain a sense of whether consumers are buying and when we might see a recovery.  The first thing I noticed was that the mall parking garage was nearly empty, but then I realized that yesterday was only the second day since Memorial Day when it had not been raining here in New England and so perhaps the lack of attendance might have had something to do with people’s need to ingest a bit of sunshine.

What was in evidence were giant sales – not just 20% and 30% sales, but signs saying “up to 60% off’ and “up to 70% off”.  Now that’s really a sale, and that is good, because at the very least inventory is being worked down and that is a first step in the process of getting ready for a recovery.  Of course, the downside of “For Sale” signs like is that they don’t bring much profit to the retailers.

What is it going to take to get a recovery?  The Federal Government is throwing as much money as it can find at the economy, but the response seems to be anemic at best. Why?

The problem is that we (U. S. consumers) are paying for our past sins – our sins of over-borrowing and over-spending.  Our balance sheets have shrunk because our stocks are not worth what they were, and our houses are probably not worth what they were and now we feel poorer and we are scared.  So we are trying to rebuild our balance sheets by saving, something we haven’t done in a long time.

In just the last 12 months, we, as a nation of consumers, have gone from saving NOTHING to saving at a 7% rate.  That is a HUGE shift and that saving is why the economy is not rebounding.  You cannot save if you spend, and we (consumers) have decided we would rather be thrifty than spend thrifty.  Good for us – it is high time we became more frugal. 

This new frugality is good for our balance sheets and good for rebuilding lost wealth, but it is not good for a V shaped recovery, the kind of recovery that often offsets a sharp and deep recession.  Until demand picks up significantly and producers start building inventory again, a strong recovery is unlikely.  In other words, until we stop saving the way we are right now, the recovery will be postponed.

The shape of the recovery will likely look like a big U, with a prolonged period of stagnancy in the economy before a more gradual recovery commences.  And that will be when consumers – in particular the 75 million baby boomers who are facing retirement over the next 10 to 15 years – again feel confident that their over borrowing has been paid down, and their balance sheets can support them in their retirement.  It will take time.

In yesterday’s Wall Street Journal, Robert R. Reich (Secretary of Labor under President Bill Clinton) wrote an op-ed in support of a public health-care plan.  At the heart of his argument was the precept that the private sector needs Government competition to provide the necessary incentive to improve its cost effectiveness.  That statement in essence argues that  the Goverment – a de facto not-for-profit entity – should run all business, because if you don’t have to generate a profit to be successful, of course you can have lower costs.  Well that, my friends, is socialism – Government ownership of the means of production.  With our Federal Government now in control of the banking system and the automobile industry, why not add the health care industry.  What is next?  Technology?  Help!!