Chart of the Day

Mitch Daniels Op/Ed

The last politician I put a lot of faith in turned out to be more worried about his Argentinian mistresses than governing the State of South Carolina, so I am going to be careful about getting to excited about Mitch Daniels. That being said, I am having a very hard time not getting really, really excited about the prospect of Mitch Daniels running for President in 2012:

The article below is from an Op/Ed Daniels wrote for the WSJ:

June 10 will be a silent anniversary, but one worth noting by those alarmed at the past year's assault on free institutions. It was last June 10 when the federal government tossed aside the option of proven, workable bankruptcy procedures in order to nationalize Chrysler on behalf of its union allies.

In order to provide preferential treatment to its cronies, the Obama administration confiscated the property of those creditors who had lent money to Chrysler in good faith, believing that their interest was legally secured and that they stood at the head of the line in the event of the auto company's failure.

The shock wave through the economic markets from this arbitrary redefinition of "secured creditors" rights was profound. Could centuries of crystal-clear law really be overthrown by executive fiat? Apparently, yes. The Supreme Court declined to intervene in the takeover. The cost of corporate borrowing was clearly headed upward as the U.S. for the first time imitated those Third World despotisms where economic rules can be changed without warning at the ruler's whim and convenience.

Equally profound was the message sent to the legal community, which quickly began to cite the "Chrysler precedent" as the now-acceptable judicial model for stripping secured creditors' rights in the name of expediency. Just days after the decision, the Phoenix Coyotes of the National Hockey League invoked the Chrysler case in an attempt to undermine secured creditors' rights and hasten bankruptcy.

Those brave few who protested the brute force taking of their money were attacked by administration apparatchiks for the sin of doing their fiduciary duty to their investors and shareholders. Calls went out from the White House, encouraging submission and warning of the consequences of opposition. One by one, potential plaintiffs surrendered.

The one effort to stop the Chrysler cramdown was launched by three Indiana pension funds. Believing they were making both a wise investment and a gesture supportive of a longtime state employer, Hoosier retired teachers and state policemen had purchased some $19 million in Chrysler's secured debt. The market consensus at the time was that, at 43 cents to par, the bonds were well below their value if bankruptcy ultimately came.

Bankruptcy came, all right, but in a new, extra-legal form run by the federal government. The United Auto Workers, who owned no interest in the company, were simply handed a 55% interest, a gift valued then at $4.5 billion. When no one else wanted to buy the firm, Fiat was given a 20% stake for free to take it over. After this looting, the legitimate creditors were told to be happy with the remnants. For Indiana's retired teachers and state policemen, this amounted to 29 cents on the dollar, a loss of $6 million versus the purchase price and millions more below the expected value in a standard Chapter 11 proceeding.

When, alone among the victims, Indiana retirees went to court, they caused a lot of discomfort but no change in the outcome. The Second District U.S. Court of Appeals declined to overturn the cramdown, but the judges refused to go within a mile of the merits. How could they? The law calls certain instruments "secured" credit for a reason, and there was absolutely zero precedent for the Chrysler confiscation.

In an article by Zach Lowe published last fall in the Am Law Daily and the American Lawyer magazine, UCLA Law School Prof. Lynn LoPucki said of the cramdown: "What happened . . . was so outrageous and illegal that until March of this year [2009], nobody even conceptualized it." The Second Circuit opinion, like the Supreme Court's refusal to stay the nationalization, went out of its way to state that the ruling did not reach the substantive issues raised.

Aided by incensed counsel donating much of their time pro bono, Indiana returned to the Supreme Court with a slim hope of recovering its pensioners' assets, reinstating traditional American property rights and making secured credit secure once more. It seemed to some an exercise in futility: The judge in the Coyotes case commented from the bench that the "poor pension manager from Indiana . . . was kind of like the gentlemen in Tiananmen Square when the tanks came rolling."

On Dec. 14, 2009, in the under-reported news story of the year, the Supreme Court granted the request of Indiana pensioners and took the case. The Court immediately ruled from the bench to strike down the decision of the Second Circuit Court of Appeals, eliminating it as a possible precedent in any future proceeding. Our retirees are still out the $6 million but enjoyed the small vindication of being awarded the court clerk's costs at Chrysler's expense.

The nation is not safe from crony capitalism. In the past year we've experienced the nationalization of the student loan industry and the passage of national health-care and financial-services regulation, each of which is rife with new opportunities for government favoritism and preferential handouts to favored corporations like Chrysler.

But thanks to a quiet correction by the Supreme Court—and a little Hoosier stubbornness—the rule of law has been re-established. The greatest benefits will accrue not to lenders and borrowers but to all those whose jobs are created because investors once again can trust that the money they've risked is safe from seizure by the state.

John Wooden - The Greatest Ever

In honor of the greatest coach who ever lived:

Please, Pretty Please, Watch This

Chart of the Day

From Congressman Paul Ryan:

The Habit of Thinking

I thought this post from Nashville's own Dr. George Grant was worth quoting in full:

The students in America’s earliest schools, academies, and colleges were educated according to the great traditions of the Christian and Classical heritage—beginning at the Latin School of Plymouth, established on this day in 1623. They were the beneficiaries of a rich legacy of art, music, and ideas that had not only trained the extraordinary minds of our Founding Fathers but had provoked the remarkable flowering of culture throughout Western Civilization. It was a pattern of academic discipleship that had hardly changed at all since the dawning days of the Reformation and Renaissance—a pattern though that has almost entirely vanished today.

Indeed, those first Americans were educated in a way that we can only dream of today despite all our nifty gadgets, gimmicks, and bright ideas. They were steeped in the ethos of Augustine, Dante, Plutarch, and Vasari. They were conversant in the ideas of Seneca, Ptolemy, Virgil, and Aristophanes. The notions of Athanasius, Chrysostom, Anselm, Bonaventure, Aquinas, Machiavelli, Abelard, and Wyclif informed their thinking and shaped their worldview.

The now carelessly discarded traditional medieval Trivium—emphasizing the basic Classical scholastic categories of grammar, logic, and rhetoric—equipped them with the tools for a lifetime of learning: a working knowledge of the timetables of history, a background understanding of the great literary classics, a structural competency in Greek and Latin-based grammars, a familiarity with the sweep of art, music, and ideas, a grasp of research and writing skills, a worldview comprehension for math and science basics, a principle approach to current events, and an emphasis on a Christian life paradigm.

The methodologies of this kind of Christian and Classical learning adhered to the time-honored principles of creative learning: an emphasis on structural memorization, an exposure to the best of Christendom's cultural ethos, a wide array of focused reading, an opportunity for disciplined presentations, a catechizing for orthopraxy as well as orthodoxy, and a broad experience honing the basic academic skills of listening, journaling, thinking, processing, integrating, extemporizing, and applying.

The object of this kind of Christian and Classical education was not merely the accumulation of knowledge. Instead it was to equip a whole new generation of leaders with the necessary tools to exercise discernment, discretion, and discipline in their lives and over their callings. Despite their meager resources, rough-hewn facilities, and down-to-earth frontier ethic, they maintained continuity with all that had given birth to the wisdom of the West.

It was the modern abandonment of these Christian and Classical standards a generation later that provoked G.K. Chesterton to remark, “The great intellectual tradition that comes down to us from the past was never interrupted or lost through such trifles as the sack of Rome, the triumph of Attila, or all the barbarian invasions of the Dark Ages. It was lost after…the coming of the marvels of technology, the establishment of universal education, and all the enlightenment of the modern world. And thus was lost—or impatiently snapped—the long thin delicate thread that had descended from distant antiquity; the thread of that unusual human hobby: the habit of thinking.”

Bribing Customers Never Works

From my man Drayton Bird:

This is Lester Wunderman – who coined the phrase “direct marketing” – and to whom I almost sold my agency.

A few years ago he and I sat on an American Express committee which met in exotic places to discuss their creative work.

Lester said little, but it was always relevant. As you might expect, I said a lot and hoped some was relevant.

I have never forgotten one thing he said when we were discussing discounts at a meeting in Kyoto. “You are training your customers to expect bribes.”

This struck me because I had already seen impeccable research by Professor Ehrenburg and Alex Biehl of the Ogilvy Centre for Research proving that those firms which advertise most and promote least are infinitely more profitable than those who do the opposite.

By promote, I mean giving things away in exchange for sales.

When you keep discounting, you are not just training people to expect bribes; you are telling them “what we offer is not good enough to sell on its merits.” You are degrading your brand.

Which brands have demonstrated this best over the last 30 years? People like General Motors, Ford and Chrysler. All ended up in deep doo-doo.

The Truth About Health Care Costs

This is some really interesting information from Patrick Cox with Breakthrough Technology Alert"

A Demographic Change for the Ages...

The health care bill is a relevant example of a policy based on premises that are fundamentally obsolete and flawed. Just as government-allocated health care is now being dismantled in Greece, it will fail in America. I'm not just ranting here, by the way. There's a huge financial payoff for those who understand the flaws in the current approach to health care regulation.

The health care bill was, in fact, based on a number of key, but erroneous assumptions. One is that health care costs are out of control. The other assumption is that government can do something about it.

Let's deal with the second assumption first, that government can control costs. This is just so much obvious balderdash, I hardly know where to start. Nothing government does is ever cheaper than the private-sector version. Economists speak of the "Rule of Two." This is a rule of thumb meaning that anything done by government will cost twice what it would if it were done by the private sector.

Sometimes, we choose to pay double because government is recognized as the only legitimate provider of some services. These include courts, police and defense. To pretend that these activities are not more expensive as a result, however, would be absurd. The fact that private-sector schools and prisons, for example, operate at half the cost of government equivalents, while yielding superior results, is sufficient evidence.

Yes, I admit there are things we could do to lower health care costs now if we had the political will. Tort and regulatory reform would result in some pretty significant short-term cost reductions. Ending the disincentive problems caused by third-party payers would also help. Implementing all of these reforms, however, cannot and will not stop the inevitable future increases in health care costs.

This brings us back to the first assumption -- that health care costs are out of control and represent some kind of crisis. The evidence typically given to support that claim is that we are spending more than ever before on health care, both as a percentage of our GDP and personal incomes.

One ought to be skeptical of this argument for obvious reasons. To begin with, our lives have been continually and dramatically improving for a long time. Sure, we're spending more of our total incomes in many different areas. We also are spending more of our total income today on restaurants, travel and personal electronics than we did in the past. Yet this is not viewed as a crisis by social planners.

We've all heard that we're "spending too much" so many times, people tend simply to accept it as a truism. It is not. There is a crisis, but it is not that we are living longer and spending more money on health care. The crisis is that a network of government programs were put in place in the 1930s based on the theory that people would work until their mid 60's. Then, they would retire and society would cover their costs. Those days, few people survived long enough to collect significant benefits. Planners did not foresee life spans increasing rapidly with all the accompanying increases in health care costs.

Today, more and more people are living longer after retirement. Because health care cost rise exponentially as we age, they are consuming far more post-employment medical services that must be paid for by younger people. This is the heart of the problem. Both the defenders and critics of medical transfer payments inevitably focus on poor, unemployed, single mothers or their children when making their cases for reform. This is, fundamentally, a ruse to avoid talking about the biggest recipients of medical welfare, older and often wealthier Americans.

The typical medical welfare recipient is not a single mother living on food stamps. It is a retired person in a sun hat, wintering in Florida or Arizona. Society could easily take care of the legitimate medical needs of disadvantaged younger people. The big, overriding problem is the transfer of money from a shrinking percentage of younger workers to an increasing percentage of older retired people.

Nothing in the health care bill changes that. In fact, it accelerates it by forcing younger, healthier workers into the insurance system earlier than they otherwise would. The inclusion of a new fee tacked onto student loans, to be used for older people's medical services, is a particularly blatant example of the stresses our system is suffering.

There are two solutions to this problem. One is to do away with biological old age entirely. An increasing number of scientists believe that regenerative medicine will eventually give us the ability to restore our bodies to a permanent biological youth, probably equivalent to about 28 years old. That is the point before our cells have started to lose function through loss of telomeres. Unfortunately, we're not there yet and don't know for sure when we will be.

This leaves Plan B. Older people, like me, will have to work longer or invest more wisely so we can afford to buy more of our own health care. It's not complicated economics.

Politically, however, it's extremely complex. Polls show that younger people, whose money is being transferred to pay for older and often wealthier people's health care, support such a change. It may be difficult politically, however, to convince older people to go along with that program. Nevertheless, the problem is going to continue to worsen until the change is made. The recent health care bill cannot and will not fix the problem, as I will demonstrate.

Let me give you some numbers to make my point...

Did you know that only one-sixth of per capita lifetime medical expenditures are accrued in the first third of life, before middle age? One-third of lifetime medical expenditures occur during middle age. Fully one half of medical expenses come during the senior years. For anyone who cares about the truth -- it is blindingly obvious that health care costs are rising because more people are getting older and old age is expensive. And the older you get, the more expensive it gets.

Since 1900, American life expectancy has increased by 19 years. It's gone up a decade since 1950, and the rate of increase is accelerating. We are far wealthier than the previous generation, and we can afford medical options undreamed of only a generation ago. There's a catchphrase we use in Silicon Valley: "That's not a bug, it's a feature."

This longevity effect means, by the way, that the administration's claims that better coverage of the uninsured and more preventative medicine will lower costs is patently false. In fact, it will accomplish the opposite. Better health care for the nonaged actually increases total health care costs because more people reach the expensive years of old age -- not that there's anything wrong with that.

If you doubt me, I refer you to a recently released study by the Center for Retirement Research at Boston College. If you haven't thought about this subject, it may surprise you, but the facts are irrefutable.

Let me quote from the introduction of the brief. The researchers conclude, "Our main finding is that although the current health care costs of healthy retirees are lower than those of the unhealthy, the healthy actually face higher total health care costs over their remaining lifetime. To illustrate, the expected present value of lifetime health care costs for a couple turning 65 in 2009 in which one or both spouses suffer from a chronic disease is $220,000, including insurance premiums and the cost of nursing home care, and 5% can expect to spend more than $465,000. The comparable numbers for couples free of chronic disease are substantially higher, at $260,000 and $570,000, respectively. This brief explains this somewhat counterintuitive finding."

Let me restate their point with less jargon: Sicker people have higher temporary medical costs, but they die earlier, so their total costs are far lower than healthy people's total costs. For the mathematically inclined, this is true even when lifetime health care costs are discounted in terms of current dollars.

This ought to be obvious, but there seems to be some sort of psychological block that keeps people from getting it. So let me say this once again: The study proves that healthier people, because they live longer and need increasingly expensive age-related health care longer, have higher lifetime health care costs.

The researchers even imply that insurance companies are missing that point when they set higher rates for people with serious illnesses. Putting it bluntly, unhealthy people die earlier and spare insurance companies and "the system" significant health care costs. If true actuarial principles were followed, people dying at relatively young ages of rapid untreatable illnesses would be given deep insurance rate discounts, if not refunds.

The uncommonness of common sense

A letter to the editor of the NY Times from economist Don Boudreaux:

Dear Editor:

Suppose Uncle Sam orders you to raise by 41 percent the price you charge for subscriptions to your newspaper. Would you be surprised to find a subsequent fall in the number of subscribers? If you assigned a reporter to investigate the reasons for this decline in subscriptions, would you be impressed if that reporter files a story offering several possible explanations for the fall in subscriptions without, however, once mentioning the mandated 41 percent price hike?

Unless you answered “yes” to this last question, I wonder why you published Mickey Meece’s report on today’s record high teenage unemployment rate (“Job Outlook for Teenagers Worsens,” June 1). Between 2007 and 2009, Uncle Sam ordered teenage workers (who are mostly unskilled) to raise the price they charge for their labor services by 41 percent. (That is, the federal minimum-wage rose from $5.15 per hour in 2007 to its current level of $7.25 in 2009 – a 41 percent increase.)

Does it not strike you as more than passing strange for your reporter – assigned to help explain why teenagers today have an increasingly difficult time finding jobs – to ignore the fact that these teenagers are ordered by government to raise significantly the wages that they charge their employers?

Sincerely,
Donald J. Boudreaux

You Can't Make This Stuff Up

A defiant move by one of the nation's most powerful unions to help oust Democrats who voted against the health-care bill by establishing a third political party in North Carolina has failed because organizers did not collect enough signatures to qualify for the November midterm elections.