Where Did My Capitalism Go?

There’s been a lot of talk about the legislation that was hastily passed by the House this past Friday night. The “American Clean Energy and Security Act” as it is called, is around 1200 pages long, and apparently already has another 300 pages of amendments which were added shortly before it was passed in a narrow 219-212 House vote. In short, this bill is long: there is a lot of stuff going on here. I’ve taken the liberty of downloading a version of the bill (before the 300 pages of amendments were added) to review myself and I’d like to address a few choice sections of it here, including my opinion on why these new laws are no good for the American taxpayer. I urge all readers to also review the text of the bill and educate themselves on the major shift in federal legislation that is currently taking place.

The first portion of the bill I’ll address is “Section 201 - Greater Energy Efficiency in Building Codes” which calls for a national building code energy efficiency target of 30% reduction in energy use as dictated in local building codes at the time of adoption of the bill in 2009, and 50% reduction in building energy use by 2015. The bill requires state by state adoption of these targets to be written into new building codes within a year after the adoption of the federal law. Each of those building codes must also be approved by the national overseer, the Secretary of Energy, as meeting the targets set forth by the bill. The fact that the government needs to use the states as a vehicle for this shift in building code (a responsibility solely entrusted to the states) is evidence of the federal inability to dictate and enforce such legislation. This change, if adopted by the states, would cause major hardships for the construction industry, not only for builders but for architects, engineers and local jurisdictions, burdening all involved with the extra cost of acheiving this reduced energy consumption target that will ultimately reflect itself in higher housing costs.

The bill realizes that, by its own actions, the cost of energy to the consumer will be increased. This is exemplified by the text in “Subtitle B, Section 432 - Energy Refund Program for Low Income Consumers” which gives refunds to those who can’t afford to pay for their energy consumption. This section is a built-in method for the government to chip in on the increased cost of energy that will result from this bill. Again, the administration of this program also falls on the states who will need to create new beauracratic infrastructure for the pay out of refunds to consumers that can’t afford the energy they buy. The bill also does not specify a budget for the expense of this new program as is customary with legislation funded by taxpayer money.

The final section, which has gotten much more media attention than those previously discussed is the latter portion of the bill, “Title VII - Global Warming Pollution Reduction Program”. This is the basis of what is also referred to as the “cap and trade” program. This section of the bill sets limits on the carbon emissions that companies and industry can, well, emit. The bill allows those that fail to reduce their own emissions to buy credits or offsets from other entities that have been successful in that endeavor, or by investing in sources of renewable energy and thus playing the carbon offset market. The bill sets regulations for the offset market, and targets for reduction of greenhouse gas emissions. The issue here, again, is the increased operating cost transferred to the businesses affected by this legislation. Companies will be forced to limit their production, find new manufacturing methods or be forced to buy offset credits. This will inevitably cut jobs, increase research and development costs, and increase operating costs in an attempt to compensate for money dedicated to adhering to these new regulations. This increased cost to American businesses will be transferred to the consumer…why else would such a provision as the Energy Refund Program be made in the bill?

The provisions of this latest legislation passed by the House, in my opinion, will have detrimental effects on the American economy, the power of states to write their own building standards, the value of energy for the consumer and supplier, and the perception of what climate change means for the American taxpayer. American people across all classes will be affected by increased taxes to support the local, state and federal beauracracy needed to enforce this legislation, and by increased energy costs that the American business will need to pass on to the consumer in order to adhere to new emission and energy efficiency standards. Please read this bill and learn about its contents. The American standard of living and free market are under severe threat.

I read this opinion piece about the current health care proposal of a public insurance system being reviewed by Congress and started to consider the main question being asked: why should private insurers fear the proposal of a public insurance system? The article had some good thoughts but, in my opinion, the author didn’t give an adequate answer to his primary question. I’ll give you my take on the issue here.

From what I can deduce, private insurers may fear the current proposal because a public insurance system would be cheaper for the insured, meaning the private insurers prices would have to be lowered in order to adequately compete. But one of the main reasons the private insurers prices are currently so high is that they need to buffer against today’s uninsured. The fact that uninsured persons still use the healthcare system without being able to pay for their care translates into an increased price for that care across the board (a cost that private insurers currently have to roll into their price). If a public healthcare system is created, those costs will decrease allowing the private insurers to better compete with the public plan. The problem then becomes the transfer of the cost for the publicly insured into higher taxes for the citizentry.

The money to pay for a public health care plan is the main sticking point: those who most need this plan are often the least able to pay for it. Given the current make up of Congress, I expect the cost of this public insurance to be pinned on the middle and upper classes in the form of increased taxes. I don’t believe in paying for the needs of others. Those who don’t make enough money to provide adequate health care for themselves should not force those who can take care of themselves into an involuntary position as social provider. The screening process for such a public program shoud be rigorous enough to determine actual need based on an inability to work and provide for yourself (something the government should have plenty of experience with by now, and yes, you can read that as a jab at welfare).

The private insurance companies should have little to fear. Ultimately, you get what you pay for, and I guarantee that the service and quality of healthcare will be worse for those under the public plan. The private insurers will remain the providers of quality care, probably at less cost to the insurer. The ones who will bear this burden are the taxpayer, mainly those who want to maintain their level of care by remaing privately insured, but find themselves in debt for the health care needs of those that choose to use the public option.

The last article generated a great response so I want to continue along the same general topic: whether or not the government should be charged with protecting the people from themselves, specifically pertaining to the recent tobacco legislation signed into law. The legislation places heavy restrictions on tobacco marketing, primarily to thwart the youth of America from becoming smokers, but also to raise general awareness about the hazards of smoking.

While in the past the tobacco lobby was a definitive wall against such legislation, this time around Philip Morris USA, the nation’s largest tobacco company, turned the tables and seemingly supported the legislation outright. This drew heavy criticism from other cigarette makers with lesser market share that said this new legislation would hinder them from winning a greater portion of the consumer base. Honestly, I have to hand it to Philip Morris…they saw an opportunity and took it. Who needs marketing anyway when you already have the customer addicted to your product? But I digress…

The question is: Does the government really think that covering 50% of a cigerette package with warning labels will deter people from smoking? The health hazards of tobacco are quite well known among the American public. We know that nicotine is addictive, so if you get into the habit, it will be very hard to stop. We know that smoking often leads to cancer, and ultimately reduces one’s life expectancy. I don’t think it’s the label on a package of cigarettes that entices the buyer. The product is what people want (and in a lot of cases, need). I don’t see tobacco sales drastically declining due to this legislation, just for that reason. If the government wants to continue to protect its people from the harmful habit of smoking, they should expect a long term, generational fight; one that should base itself on a new way of thinking rather than reactionary deterrents to the industry.

The most effective thing that the American people (government included) can do to curb the habit of smoking is to educate the youth of the nation. This already happens to a certain extent, but obviously our country (among many others) still has an issue with underage smokers. Banning the sale of candy-flavored cigarettes is a lame solution. A better idea would incentivize good parenting practices; for instance, a program that would give a tax-break to parents that kept their kids from smoking for a set amount of time. Truthfully, I’m against anything like this idea or the new laws since I don’t believe parenting or the tobacco market are any of the government’s business. But if the government’s going to intrude anyway they should address the root of problem (lack of attention when parenting) and not punish tobacco companies for diversifying their product line by reducing their marketing capability.

Well I’m sure that most have already heard about the new regulations over the financial system the Obama administration is proposing. Increased programs for consumer protection, more power delegated to the Federal Reserve when they’re faced with institutions deemed “too big to fail”, and increased federal oversight on certain types of products within the financial system are some of the hallmarks. Don’t mind me if I get a little philosophical here but, what is the purpose of government? Is it to protect people from themselves? To protect them from ignorance? Do we need the government to tell us what the risks are when buying stock, or how much we can truly afford when we’re considering a home mortgage?

At what point did people stop thinking for themselves, and start relying on the government for protection from their own mistakes? I can understand a government that provides services and functions to the taxpayer like interstate highways, and civic education, and even a standing military, but do we really need our government in the business of determining financial risk? I’m sure that this whole idea of government as its brother’s keeper got its start with FDR in the Great Depression (talk about seizing a great opportunity).

Think about social security and the federal deficit at the exact same time: Do you really think the US government is better at managing your money than you are? I, for one, do not, and now we see that more of the money promised to the government by the taxpayer is being spent on further public and private oversight. Still, every working American is forced to contribute a portion of their earned money to a program that protects them from an ill-prepared retirement when in its essence social security defeats the forward-thinking mind by rewarding the poor financial planning of the non-saver. The more power we vest in the government, the weaker we become.

I believe this weakness is what drove us to where our economy and understanding of governmental purpose is now. Did we expect the person selling us a house to say, “Maybe you can’t afford this…”? Did the buyer expect a federal agency to verify that each of the loans delved out to first-time buyers were appropriate for their level of income? Maybe some people were expecting that kind of protection. Either way the “security” that some seek may soon become a reality. What we’re seeing proposed is a patchwork of reactionary oversight aimed at strengthening the federal government’s role as the central network through which business transactions are processed. The role of government is shifting further away from its purest purpose as a servant of the people, and becoming more like a savior. I hope I’m not the only one that doesn’t want to be saved.

Two more steps in the wrong direction occured today within the current US administration.  First Treasury Secretary Timothy Geithner announced that the administration would seek to have the SEC force public companies to hold shareholder votes on compensation packages for high-level executives.  And second, the administration appointed an overseer to set executive pay at large companies receiving US bailout funds.

The problem with this second issue of a single point man charged with deciding salaries for some of the nations largest companies, is that he is a total outsider.  Nothing against the guy, but what does he know about the companies he’s making these important decisions for?  Aside from the fact that the US government has already poured billions of taxpayer money into these firms, this move is further solidifying President Obama as the ultimate CEO of these companies and Geithner as their CFO.  The president is making strategic decisions regarding these bailed out companies (see my previous blog on GM), dictating who can loan money to whom, and which parts of which companies will be saved, and which will fail.  Geithner is busy deciding where all the money goes.  If US citizens are still expecting a government takeover of private industry…surprise!  It’s already happened!

The administration’s reasoning for this latest intrusion is to preserve accountability for the tax payer.  But this is government at its worst:  patching up past failures (the initial bailouts, followed by the “excessive bonus” hullabaloo) with reactionary regulations and increased oversight.  The people of America would be better served if instead the government began accepting more of the bailout loan repayments that some financial institutions have initiated in the past few weeks.  Even in this repayment process, the government has been a thorn in the side of industry.  For whatever reason, the administration is only accepting repayment from certain companies, under certain circumstances.   These firms are trying to get the tax payer’s money off of their books, and the government won’t have it…and now Geithner intrudes further on their day-to-day operations by installing some random lawyer to manage their payrolls.

The first issue of forcing publicly-held companies to put compensation packages to a shareholder vote is equally reactionary.  The current adminstration somehow does not understand the public market…or they think the tax payer doesn’t understand it…or maybe it’s both.  What the government doesn’t get is that the most powerful vote a shareholder can make is with their dollar.  If you, as part owner of a publicly traded company, disagree with the compensation packages received by the executives at the company, you can sell your shares…you don’t have to hold on to them.  You can also persuade fellow shareholders to do the same in protest if they agree with your opinion on excessive bonuses and high salaries.  If you think that reason alone is not enough to justify the sale of your shares, and you still expect to make some profit if you stay on as part owner, congratulations:  you just reasoned your way to a business decision!

It’s not the non-shareholding public’s or government’s responsibility to set rules for the payment of company employees.  If a company wanted to factor in shareholder voting when deciding executive pay, that’s their prerogative, and if not, that’s okay too.  That’s the beauty of a free market system.  Businesses are free to decide how best to run their organizations, and when all businesses reach these key decisions on their own, without government influence, the market benefits.