The president is making sense
Ezra Klein and Matthew Yglesias both catch President Obama making sense on the public option:

QUESTION: Wouldn’t that drive private insurance out of business?

OBAMA: Why would it drive private insurance out of business? If private insurers say that the marketplace provides the best quality health care; if they tell us that they’re offering a good deal, then why is it that the government, which they say can’t run anything, suddenly is going to drive them out of business? That’s not logical.

Making Sense? I respectfully disagree. Obama’s answer conveniently leaves out some important economic factors.

President Obama asks, “Why would it drive private insurance out of business?”

The answer is simple:

1. Because the government operates outside the market and price system and therefore has the unique ability to artificially set their price below the competitive market (something private insurers do not have the power to do, because their price is determined by supply and demand). Contrary to popular belief, Prices in the free market are not set arbitrarily. This is easily demonstrated by Craigslist. I recently tried to sell a rather ugly southwestern style kitchen table for $200. I actually figured that it probably wasn’t worth that, but I thought I would try it and see if I got any bites. No Response.
   Soon – I lowered the price to $150. Nothing.
   Finally, I lowered it to $100 and I sold it fairly quickly. You can see that I could not sell the table for more than it’s actual real-world perceived value. I didn’t really set the price at $100, rather, low demand for the ugly table did.
2. Also – the government is funded through non-voluntary trading – by taxation, thus has no competition, no bottom line, no incentive, nor any reason whatsoever to function efficiently. Nor do they have any real incentive to provide ‘better health care’ (In a public system – someone in an office, who knows nothing about you, will determine the policy of what is considered ‘adequate’ healthcare based on what – Statistical data?) since you don’t get to choose to pay (essentially, vote with your dollars) for their service. Only the government has the power to force you to pay for their service, whether you want it or not. Private industry has to offer you something you value more than your own money, to earn your business.
3. Finally, the fact that most people falsely perceive government options as “free,” basically guarantees overwhelming popular and political capital for an idea that you cannot choose not to pay for. Even if the actual outcome of such a program is poor, the majority of voters will subscribe to the nice sounding idea that everyone should receive health care. It is, after all, a noble sounding ideal – but unfortunately, when measured against history, or any kind of actual economic cost/benefit results – it fails.

I would expect Paul Krugman, Ezra Klien, Matthew Yglesis, and President Obama to know better, but political capital is so much easier to get excited about, than the, rather, wet blanket that is economic reality. It’s time (yet again) for one of my favorite quotes:

“The first lesson of economics is scarcity: there is never enough of anything to fully satisfy all those who want it. The first lesson of politics is to disregard the first lesson of economics.”
-Thomas Sowell

You cannot buck economic forces. In my view – they are as consistent and absolute as the laws of Mathematics. Yet they seem to be the first to be disregarded in the face of an idea that sounds really satisfying.

I have written much more extensively on this here: Healthcare: Economic Reality vs. Political Capital

Many thanks to Youtube user brittle13 for posting this full interview (in 5 parts):

President Barack Obama will announce plans on Tuesday for a national fuel-economy and greenhouse-gas standard for automobiles in an effort to give more certainty to car companies as they struggle for survival.
The plan marks the first time there has been a nationwide standard for emissions of greenhouse gasses, and it will require an average mileage standard of 39 miles per gallon for cars and 30 mpg for trucks by 2016.

That’s a dramatic increase from current levels – the White House says the average fuel efficiency for the current model year is just 25 mpg.

- Politico

Interesting proposal, right? I mean, who doesn’t want cars with better fuel efficiency? As it turns out – this is a surprisingly relevant question to be asking. If the majority of people want more fuel efficient cars, why aren’t the auto-makers selling them? In fact, let’s try to answer this question, by first answering several other foundational questions about this proposal. the idea here is simply to think beyond stage one of, “Better Fuel Economy – by Government Mandate.”

First, Economist Thomas Sowell’s big three ‘Must answer’ questions concerning any proposal:

1) Who pays for it?

Mostly, you – the consumer. Of course, the car companies and auto workers will also suffer, as the cost to produce their vehicles is driven up arbitrarily, rather than by market demand. They will have no choice but to raise the prices of their cars, trim back weight and features, and/or take even bigger losses on each car sold. If that seems like a raw deal, it is likely that we all will also be paying (as we currently are) to keep the auto companies in business, if these fuel efficient cars don’t sell.

2) How much will it cost?

The senior administration official said the new standards will add an expected $600 to the cost of an average car, but the White House hopes that increase will be recouped through lower gas costs. The economic models used by the administration required a guess of the price of gas in the year 2016. The figure they used was $3.50 a gallon.

-Politico

Government guessing the price of gas in 2016? This should immediately raise flags, given that last year alone, fuel prices rose to $4.00+ in the summer, and then fell to $2.50 or so, and are now rising again. How the government can possibly make this prediction 7 years into the future with any certainty should be laughable.

Regarding the cost, $600 is the conservative guess by the way. The Washington Post mentioned $1,300 on average, per car.

And let’s not forget the increase in loss-of-life due to lighter, less safe vehicles on the road. (See crash tests below)

3) Will it work?

Well – that’s the real question, now isn’t it? I am not exactly optimistic.

Sure, brand new cars will be required to meet better fuel economy standards by 2016. However, will the auto makers be able to survive, and become profitable again selling them? Only if there is a sufficient demand by auto buyers to cover the required increase in production costs that the auto makers will be forced to shoulder.

Similarly, considering the environmental goals: does creating and buying more vehicles, and disposing of current ones, really achieve a lowering of environmental impact?

Let’s also re-visit my question at the top: Who doesn’t want cars with better fuel efficiency? Apparently, you don’t. Perhaps a better way to frame this question may be – why haven’t more fuel efficient cars been made? The answer is actually so unremarkably boring and simple that most people skip over it, favoring instead vastly more complicated theories, and or corporate conspiracies.

The answer is Price.

Behind all that wild theories, the laws behind the efficient allocation of scarce resources that have alternate uses* (commonly called: economics) still march on, like an unstoppable rebel force.

The basic economic fact is that the market (at current fuel prices) cannot bear the increase in automobile prices (due to higher fuel efficient cars) in a way that would be profitable for auto makers. If it could have, you can bet the automakers would have already jumped on the possibility, as they did briefly last summer when the price of oil peaked (At the time, ‘Green’ cars and Hybrids like the Toyota Prius were all the rage, as were car ads that emphasized M.P.G.). Note that when the price of oil increased, the market responded, and consumers suddenly valued the higher priced Eco-Cars. No government mandate required.

Also, there is the Cost.

Increased fuel efficiency comes with a trade-off, or cost for the consumer: reduced safety. When the consumer considers the value in a vehicle, safety is usually a critical concern. It appears that at current fuel prices, consumers value vehicle safety, over fuel efficiency. And the trade-off for fuel efficiency vs. safety is huge. For instance, here is a Toyota Yaris and a Toyota Camry (note that a Camry is not a big vehicle) in your standard drift-across-the-yellow-line test:

Owned by a Camry!

And here’s the same test for a Honda Fit vs. a Honda Accord (also, not a large vehicle)

Are you going to put your kids in that?

This is the very real cost trade-off that consumers face when they go to purchase a vehicle. The reason that more fuel efficient cars don’t sell is that, at current gas prices, consumers would rather trade the extra cash, for their own life and safety, rather than a couple more miles-per-gallon. If gas prices were to rise again, consumers would automatically and incrementally start placing more value on fuel efficiency.

Central Planning vs. The Free Market

In the end, the heart of this issue illustrates the classic clash of two opposing views over the very real way economic factors function. Namely, that the will of a handful of elected officials can out-smart the will of millions upon millions of consumer, and producer choices.

In this case, The President has decided that fuel efficiency and eco-friendliness are the highest values, regardless of other concerns and costs. The intent of the idea may be noble, and certainly makes for exceptionally good political capital. However, in the end, the will of the consumer, the will of the auto makers, and even the stability of the auto worker’s employment, is traded in the name of eco-friendly cars.

And don’t get me wrong. This isn’t necessarily a knock on Obama. Many politicians jump at the opportunity to score political capital, without thinking beyond stage one. I’m fairly certain that McCain would have been on board with an idea similar to this.

In my opinion, the basic economic mechanisms of the free market, such as Price, Cost, and Supply and Demand, will force the creation of fuel efficient vehicles, and alternate fuel vehicles, when it actually makes economic sense – and without the mandate of any governing body.

Unfortunately, with the current central planning approach, we will have no choice but to bear the hidden costs.

You can read some other perspectives on this issue at: Politico, Time, The Washington Post, Hot Air, Michelle Malkin, The Heritage Foundation, and Steve Milloy’s Blog – just to start.

*The definition of economics, as explained in Basic Economics, by Economist Thomas Sowell

This is a good thing to keep in mind as we discuss ideas like Capitalism and Socialism. When you feel angry about rich and wealthy people – don’t forget that they don’t just stuff their money in mattresses (though they certainly are free to do so). They invest that money in businesses, buy houses, and build things. This investment employs a vast amount of talent from all sorts of people.

While some people with wealth may be motivated by greed – this does not justify jealousy, coveting, and the demonizing of all people with wealth (one of the foundations of Marxism). Nor does it justify stealing from those (by governmental force through unfair taxation) to redistribute that wealth to people who did not rightfully earn it. Remember – most people with wealth did not steal it. They offered a product or service that someone else valued more than their own dollars, and then chose voluntarily to trade for. If we wish to value freedom as a people, we have no right to then turn around and confiscate the property of the wealthy that they earned by trading fairly.

One of the foundational rights of a free people is the right to the wages of their own labors (more commonly referred to as the right to private property). This is the core of Capitalism. All other systems, in one from or another, deny private property, and end in collective slavery to the State (government coerced collectivism).

I will expand on these thoughts in part two of my study on Rejecting Socialism (be sure to read Part 1 Here, if you haven’t already). It is taking me a while to write, not only because I have been busy – but also because I want to make sure that I am thorough and fair. Be sure to keep checking back!

For example, most conservatives would agree with the intention of most social programs, such as the minimum wage, or social security. However, the question that a conservative might ask would be, a) does the particular social program achieve its stated goals, and b) does it do this by trampling upon another individual’s liberty?

Milton Friedman discusses many of these misconceptions (still totally relevant today) about capitalism, greed, social security, minimum wage, the free market, etc in the video below: