Free Lunches Aren't So Free

General Motors announced that it is withdrawing its application to borrow $14.4 billion in loans from the federal government.

The loans are part of the government's $25 billion program to lend money at below-market interest rates to auto companies to subsidize their investment in more fuel-efficient cars.

But GM has decided that there is a price to pay for government handouts, since many car buyers have shunned bailed out GM and Chrysler, preferring to buy cars from Ford which didn't take government money.

While it may be optimistic to believe that GM's example will deter others from seeking bailouts in the future, it is good to see that the stigma from government bailouts will make others think twice before pursuing them again.

True Colors

Facing a dire fiscal crisis, the Camden, NJ government laid off half its police force and one-third its fire department. The city sought to cut pay to avoid or minimize layoffs, and the unions preferred to see many of its members lose their job so the remaining members could have higher pay.

The people of Camden will be the ones who suffer, losing the protections provided by greater numbers of police officers and firemen.

Newark, NJ faced a similar situation, where 167 police officers lost their jobs after the police union wouldn't agree to wage and benefit concessions.

This terrible outcomes highlight the obvious, but often overlooked, incentive that taxpayers have: taxpayers should want the most services for their tax dollars, which implies that, in the efforts to balance government budgets, taxpayers should strongly prefer to see reductions in government employees all-in compensation than layoffs which reduce the quality of government services provided.

This is exactly analogous to how most people view other goods and services they purchase, whether they try to pay less while getting good quality. Most people have bought items on sale, at discount stores, or bargained for a better price such as buying a car. Directly or indirectly, such a focus on getting a good deal serves to reduce the income of someone in the chain of supplying the good or service.

Whether a car salesman who gets a lower commission because you negotiate a lower price on the car you purchase, or lower revenues to the retailer which puts downward pressure on wages when you buy clothes on sale, most people try to get a better deal when they spend their money even if the impact leads to lower wages for someone else.

As taxpayers, we need to have the same mindset, and recognize how normal and natural it is to do so. Otherwise, looming disasters such as will afflict Camden and Newark will become commonplace.

He Told You So

I have long believed that the environmental movement reflects the anti-capitalist, anti-industrial agenda of the left.

Don't take my word for it. Patrick Moore, one of the founding members of Greenpeace, confirms this. Quoting from a recent column he wrote:

"To a considerable extent the environmental movement was hijacked by political and social activists who learned to use green language to cloak agendas that had more to do with anti-capitalism and anti-globalization than with science or ecology. I remember visiting our Toronto office in 1985 and being surprised at how many of the new recruits were sporting army fatigues and rebel berets in support of the Sandinistas."

So the next time the environmental movement expounds its views, recognize that it often reflects an agenda far different from "clean water and air".

A Modest Proposal

As I have discussed in previous columns on the health insurance market, one of the profound problems afflicting healthcare insurance is that many patients have an incentive to overuse healthcare services since the patient often faces reduced, or in some cases little or no, costs as compared to the full cost of the treatment.

Studies show that a high percentage of a person's lifetime use of healthcare services occurs in the last six months of life, as often very expensive healthcare treatments are employed to address severe health problems. If a person faces little cost for potential life-extending treatment, many will naturally want to the treatment. If Medicare has to pay hundreds of thousands of dollars, for treatment that perhaps extends your life by a month or two, you will be tempted to incur such costs and treatment if your out-of-pocket is a small fraction of the total.

Medicare has an unfunded liability of an estimated $60 trillion, dwarfing the nation's national debt. This liability measures how much more money it will cost the federal government to pay Medicare expenses than it will receive in Medicare taxes.

Suffice to say, the nation cannot afford a $60 trillion liability. The unstated significance of ObamaCare is to cut government spending on healthcare by controlling the healthcare marketplace. Many countries with socialized medicine spend a smaller fraction of their economic output on healthcare - not because they are efficient, but because they simply provide fewer expensive healthcare treatments. The use of waiting lists to delay surgery and denying introduction of new drugs and medical devices are some of the ways these countries reduce healthcare spending.

Sooner or later, America needs to change its healthcare system to either socialized model, such as the path ObamaCare would take us, or a model consistent with freedom and individual rights, where the patient bears a greater portion of the cost of treatment so they have an incentive to economize on spending.

One step in this direction would be to continue Medicare and Medicaid's practice of paying exorbitant costs for healthcare - but then charging those costs above a certain threshold to a person's estate. If a person is poor, they will little or no estate so they will experience little or no change in their financial position from this proposal. But for middle and upper income Americans, they will have to seriously consider whether the cost of expensive treatment is worth paying the price in terms of leaving less money to their children and grandchildren.

The Education Market

The Wall Street Journal discusses the problems that the Harlem Day Charter School has had. Unlike many charter schools, it has lagging student test scores compared the population from which it draws.

Its charter is up for renewal this year, and the school's Chairman of the Board admits it won't be renewed due to their failures. Instead, the school has proposed that another successful charter school organization, Democracy Prep Public Schools, take over the school and have the charter renewed under their leadership.

While defenders of the status quo in education will use Harlem Day's failures as evidence against charter schools - notwithstanding the strong overall performance of charter schools - in fact their failure and resulting risk of being closed demonstrates another advantage charter schools have over regular public schools: they can be closed for failure due to the need to have their charter renewed every five years.

If public schools faced such a fate, they would be motivated to take even radical steps to avoid closure - and there are few things more radical than Harlem Day's proposal for its administration to be replaced by a new organization.

The result would be improved education for children in failing schools.

The Real Storm

The Wall Street Journal reports that a federal prosecutor is investigating claims by a New York City councilman that sanitation supervisors and workers engaged in a work slowdown during the efforts to remove snow from streets during last week's snow storm.

New York City has reduced sanitation department employment levels to address its budget deficit, so there is certainly motive. And if there is evidence of such a slow down, it highlights the abusive power of public unions and the lopsided power government employees have relative to their government employer.