Midterm elections are looming on the horizon and it therefore should not be surprising that President Obama is in the market for votes to stave off the loss of a Democratic majority in the U.S. Senate or gain a working Democratic majority in the U.S. House of Representatives.

An above-the-fold, front-page article in Wednesday’s Wall Street Journal (“U.S. backs off Tight Mortgage Rules” by Nick Timiraos and Deborah Solomon) reports that, “in a sharp shift from just a few years ago,” the Obama administration plans to finalize new rules for mortgage-backed securities that will loosen down-payment requirements for homebuyers. Mel Watt, installed recently as head of the Federal Housing Finance Agency, which oversees Fannie Mae and Freddie Mac, said that those two zombies “should direct their focus toward making more credit available to homeowners.”

Allowing homebuyers and people refinancing existing mortgages to make down payments of 10 percent rather than 20 percent of a property’s market value supposedly will jumpstart the weak national housing market, “a factor holding back the economic recovery”, according to Treasury Secretary Jacob Lew and Janet Yellen, Chairwoman of the Federal Reserve System.

This is déjà vu, all over again, as Yogi Berra once said. Isn’t encouraging banks and other mortgage lenders to relax their standards so as to promote the goal of making affordable housing available to more people how, aided and abetted by a compliant Treasury and Fed, the George W. Bush and Barack Obama White Houses got the economy into trouble in the first place?

Moreover, the Great Recession and the Great Depression before it never were problems of bank credit availability or liquidity. Both were balance-sheet problems associated with too much “investment” in housing and real estate, which suddenly was transformed into dead capital after the housing bubble burst and many homeowners found themselves “underwater”, holding mortgage debt that exceeded the market values of their homes.

Pumping more credit into the housing market threatens to start another boom-and-bust cycle. The only way to restore genuine economic prosperity is to allow housing prices to fall, thereby truly making housing affordable and at the same time restoring balance to the balance sheets of homebuyers and lenders. Fannie and Freddie should be punished for guaranteeing bad loans rather than being rewarded for willfully encouraging an artificial run up in housing prices that was unsustainable. Banks and homeowners also need to take their lumps.

One of the most intuitively appealing arguments for ensuring that everyone has health insurance is the claim that uninsured patients crowd emergency rooms but don’t pay their bills. Hospitals present these bills to government, and taxpayers end up paying. Health Affairs has a new estimate of these costs:

We estimated providers’ uncompensated care costs in 2013 to be between $74.9 billion and $84.9 billion. We calculated that in the aggregate, at least 65 percent of providers’ uncompensated care costs were offset by government payments designed to cover the costs.

At least $46.7 billion to $55.2 billion of this uncompensated care is covered by taxpayers. To put this in perspective, national health spending in 2013 is estimated to be $2.9 trillion. So, the mid-point of the estimate, $51 billion, amounts to only 1.75 percent of national health spending.

The flip side is that about $29 billion — less than one percent of national health spending and just three percent of hospital revenues — is, therefore, actually uncompensated to hospitals. And even this figure is inflated, because hospitals calculate their uncompensated care using inflated list prices (the “chargemaster”) which no informed payer pays. So, there is really no plausible argument that the tiny fraction of care that is actually uncompensated is causing a financial crisis for hospitals.

Thomas Piketty’s Capital in the Twenty-First Century is a surprising best-seller (how many economics books make the New York Times best-seller list?) and has been getting lots of press lately.  Reading it, I have some comments and observations, which I will make in a series of posts rather than in one extended review.  I’m figuring there’s a limit to how much readers of The Beacon will want to slog through at one time.  It’s economics, after all, and my experience is that people don’t have a high level of tolerance for abstract economic commentary.

The basic idea behind Piketty’s detailed analysis is that the rate of return on capital is greater than GDP growth, so people who get their incomes from the ownership of capital will find their wealth and income growing relative to the average person over time.  The result is greater inequality in income and wealth, which can be socially destructive if it is not controlled.  Ultimately, Piketty proposes a global tax on wealth as one way to address the problem of inequality, but I will get to that in a later post, after discussing other issues related to the book.

The book is easy to read, although long at 685 pages.  And with that many pages of economics, which does make for dry reading, I wonder how many purchasers will actually read the whole book, rather than just hold it up as a reference when speaking about the growing problem of inequality.  Piketty is convincing.  He has done a nice job of collecting a substantial amount of historical data for many countries, and using it to demonstrate that there is, indeed, a substantial amount of inequality in income and wealth, and that inequality has been growing over the past 30 years.

Piketty explains where he got the data, how various economic measures are constructed, and how they are related to each other in enough detail that I am persuaded he has done a good job of collecting and presenting the best data available on the subject.

In short, the book is competently researched and written.

The book has obvious Marxist undertones.  Piketty favorably cites Marx more than just in passing, and the class conflict pitting the owners of capital against those whose incomes come from labor has a clear Marxist slant.  But Piketty also recognizes some problems with Marx’s analysis, and ultimately the places where I would take issue with Piketty are more related to his reliance on concepts more closely associated with neoclassical economics, and with his aggregation of economic measures without clearly thinking through the economic processes behind those measures.

Because his data on growing inequality is convincing, I am not taking issue with that.  But his framework for projecting growing inequality in the future is less convincing, for reasons he does not appear to recognize.  Capital does not just exist and produce a rate of return.  It has to be employed productively, which Piketty acknowledges in his words, but not in the empirical framework he uses to draw his conclusions.  Therein lies the most fundamental problem with his analysis.  His framework misrepresents the nature of capital, how it is valued, and how owners of capital earn their returns.

I am reluctant to tax readers of a blog with too lengthy a post, so for interested readers, I will put up additional posts with more specific comments on Piketty’s analysis.

Last quarter, spending on health care grew an astounding 9.9%. That’s the biggest percent change in healthcare spending since 1980.

What’s the reason? Many people blame it on the Affordable Care Act (ACA), more popularly known as Obamacare.

But this assessment contrasts markedly with the picture the president painted for us only a few months back when he said that “health care costs are growing at the slowest rate in 50 years.” He and members of his administration attributed that to the ACA.

So which view is correct? Probably neither. It’s too soon for Obamacare to have resulted in a big boost in spending. And the previous slowdown was underway over a decade.

I’ve just published a short book, Advanced Introduction to the Austrian School of Economics, which is designed to give people with some knowledge of economics an explanation of what ideas distinguish the Austrian school from mainstream economic thought.  The paperback is relatively affordable ($22.36 if ordered on-line).  The book is much slimmer in person (144 pages) than it appears in the graphic on the web site.

The book is not an introduction to economics from the point of view of the Austrian school.  I assume the reader has some knowledge of economics, perhaps from taking an introductory college course in economics.  Readers with this background may have heard of the Austrian school but be unclear about what makes it different from the mainstream ideas taught in college economics courses, and I hope this book provides an answer.

The media told us that Obamacare’s enrolling 8 million (or so) beneficiaries in the health-insurance exchanges by the end of March was an epic achievement. If that was the best the administration could do, it was not nearly good enough for the American people.

Five polls, conducted since Obamacare’s initial open enrollment closed, confirm that the administration’s “all hands on deck” surge at the end of March failed to change negative public perception of Obamacare. Here’s the list:

Kaiser Health Tracking Poll:

• 38 Percent “favorable” vs. 46 percent “unfavorable”;

Washington Post/ABC News:

• Obama’s implementation of new health law — 37 percent “approve” vs. 57 percent “disapprove”,
• Implementation better or worse than expected? — 41 percent “better” vs. 50 percent “worse”,
• Is healthcare system getting better or worse? — 24 percent “better” vs. 44 percent “worse”;

“A liberal society stands on the proposition that we should all take seriously the idea that we might be wrong. This means we must place no one, including ourselves, beyond the reach of criticism; it means that we must allow people to err, even where the error offends and upsets, as it often will.” —Jonathan Rauch

I’ve recently had the pleasure of reading the updated and expanded edition of Jonathan Rauch’s Kindly Inquisitors: The New Attacks on Free Thought. As a firm supporter of free speech, free inquiry, and freedom of conscience, I believe the legal arguments for the First Amendment are important, but the broad moral and philosophical justifications are equally crucial if not more vital. That being said, Rauch’s book makes a powerful case within those themes under 200 pages.

Although representative government and a free market economy are rightly recognized as pillars of liberalism, its intellectual system for producing and spreading knowledge, “liberal science,” has not received its full due. Drawing upon the work of thinkers including David Hume, John Locke, Charles Sanders Peirce, and Karl Popper, Rauch highlights and elaborates upon the concept of “liberal science.” In the system of liberal science, beliefs and observations are transformed into public knowledge through the robust exchange of ideas and conflict between clashing viewpoints. This process where ideas compete is dynamic and never-ending. A liberal, knowledge-seeking society will always encourage inquiry and even welcome criticism and controversy towards long-settled thoughts and beliefs. According to Rauch, liberal science embodies the principle that the “checking of each by each through public criticism is the only legitimate way to decide who is right.” With these simple but effective rules, liberal science became an unprecedented knowledge-generating political system that encouraged peace by allowing for greater toleration of dissent than any other in history. Under the system of liberal science, no one gets the final say and no one has personal authority. By its very nature, liberal science is the very antithesis of fundamentalism and authoritarianism.

In 1993, British author Salman Rushdie became a hunted man after the Ayatollah Khomeini placed a fatwā on his head. His book The Satanic Verses caused an international uproar when fundamentalist Muslims alleged it contained blasphemy. Yet, it was the incoherent and muted responses by Western political leaders and intellectuals that disturbed Rauch the most. Most of the responses went by the lines of “Yes, we believe in and support free speech but he shouldn’t have written something so offensive.” In Rauch’s view, “the Rushdie affair was a defining moment. It showed how readily Westerners could be backed away from a fundamental principle of intellectual liberalism, namely that there is nothing whatever wrong with offending—hurting people’s feelings—in pursuit of truth. That principle seemed to have been displaced by a belief in the right not to be offended, which was gaining currency in America.” While it came as no surprise that a religious zealot such as Khomeini would be staunchly opposed to free speech and other liberal values, the sympathetic voices of those who saw themselves as “liberal” also jumped aboard the censorship bandwagon. In the name of fighting “hate” and “insensitive” speech, ideologically driven social crusades to suppress “offensive'” language towards historically disadvantaged groups made inroads into American universities. Campus speech codes spread and political correctness became further entrenched in society at large. In his book, Rauch identifies how each one of these different camps poses a threat to free speech and inquiry.

I first met Professor Gary Becker (1930-2014) about 15 years ago, when he came to Oxford, Miss., to present a public lecture at the University of Mississippi sponsored by the Robert M. Hearin Foundation. My coauthor and then-colleague Bob Tollison and I breakfasted with him early on the morning of Dr. Becker’s visit, after he had flown in on a red-eye from Chicago the night before, arriving at a local bed-and-breakfast at about 2 a.m.

It turned out that Dr. Becker’s travel schedule was dictated by his teaching responsibilities at the University of Chicago because, as he told us, he never missed a class. Nevertheless, despite having had no more than four hours of sleep, Dr. Becker was in fine intellectual form, providing Bob and me with a rare opportunity to talk economics with a Nobel laureate.

At the time of our meeting, as news reports have indicated, Dr. Becker had been diagnosed with prostate cancer and he brought along some green tea leaves to be brewed for his breakfast drink. The news reports also say that he eventually “beat” that disease.

But now we hear that Prof. Becker passed away over the weekend from “complications after surgery,” presumably for the ulcers from which he lately suffered.

What a loss to the economics profession and to the students he cared so much about!

Professor Becker (I cannot bring myself to call him “Gary”) was, despite the recent notoriety of Steve Levitt, the original “freakonomist.” He expanded the domain of the economics discipline to areas traditionally the province only of sociologists, including marriage and the family, crime and punishment, and racial discrimination.

He will, perhaps, be best remembered for the contribution he made in his doctoral dissertation (“The Economics of Discrimination”), later published in book form, which supplied theory and evidence pointing to the conclusion that free-market institutions are the best (most efficient) solution to employers’ indulgence of preferences for whites, men, or “straights” because discrimination carries costs that compromise profitability. But he should also be remembered for an important paper he published in the Quarterly Journal of Economics on the influences of pressure (special-interest) groups on politics.

Incidentally, the Independent Institute was privileged to hold an event with Dr. Becker and his wife, the historian Guity Nashat Becker, “Free Markets and the Economics of Life,” at the time of the publication of their book, The Economics of Life: From Baseball to Affirmative Action to Immigration, How Real-World Issues Affect Our Everyday Life.

And, an excellent discussion of Dr. Becker’s work can be found in the article, “Five Market-Friendly Nobelists: Friedman, Stigler, Buchanan, Coase, and Becker,” authored by the late Charles K. Rowley (The Independent Review, Winter 1999).

The economics profession—and the world at large—has lost one of its leading lights. I join my colleagues in sadness and regret at Gary Becker’s death.

Headlining at Saturday night’s White House Correspondents’ Association dinner, the president garnered huge laughs over the fact that he’s destroying the American healthcare sector and has failed to provide an alternative:

“Of course, we rolled out HealthCare.gov,” Obama said of his tough year in 2013. “That could have gone better.”

“In 2008, my slogan was ‘Yes we can.’ In 2013, my slogan was control-alt-delete,” Obama said.

Following the president, comedian and actor Joel McHale continued the theme:

The launch of HealthCare.gov was a disaster. It was so bad, I don’t even have an analogy because the website is now the thing people use to describe other bad things.

As we used to say, “That was so funny I forgot to laugh.”

For those of us actually subject to the actions of our rulers, life isn’t so funny. Millions received cancellation notices, face much higher premiums, or have lost benefits we used to take for granted.

So why do total incompetents gain more control over more aspects of our lives daily?

Although the Bureau of Labor Statistics latest employment report shows that health care continues to add jobs at about the same rate as the rest of the economy, the shift of jobs to the outpatient setting continues.

From March to April, hospitals barely added two thousand new workers. Physicians’ offices, on the other hand, added six thousand, while providers other than hospitals added jobs at a faster rate than hospitals. This is a trend that has persisted for months.

Hopefully, it portends a change in practice to lower-cost settings. Nevertheless, hospitals are still adding workers. The hospital lobby often complains that reduced government reimbursement is causing cutbacks. The data do not confirm this.