Democracy Reform

Sir Winston Churchill once said that democracy is the worst form of government except for all the rest. He is right. Its the best form of government but it also has its flaws. I think that its flaws endanger democracy and needs to be fixed. This blog is for like minded people who want to see democracy improved. I invite people to sumbit essays. I will publish even those I do not agree with so long as I find them interesting.

Thursday, July 30, 2009

Squaring the ObumaCare Circle by Ohmyrus

President Obama's health care plan is running into trouble even from his own party. In his quest to be President he had to make all sorts of promises and the center-piece was reforming health care. He claimed that tens of millions of Americans are not covered by health insurance and the cost health insurance is also rising faster than the average income.

He promised to expand coverage, improve quality, lower costs, honor patient choice and holding insurance companies accountable - whatever that means. But votrepreneurs (politicians) must have a bogeyman to blame.

This is like trying to square a circle. If his ObamaCare is passed, the current number of health care providers and facilities will be spread over a larger number of patients. How can he expand coverage and improve quality at the same time? If you expand coverage without increasing the number of health care providers and number of hospital beds, then quality will have to drop. For some people, they will not get the doctor that they previously had. Or you have to wait a longer time before a hospital bed becomes available - by which time you might be dead.

So you can see how votrepreneurs get elected by selling snake oil, then rush to come up with a bad plan to keep their hasty promises. An obvious part of the solution must surely be to increase the supply of health care services by training more health care providers and building more hospitals. But this takes time and the system works on a four year election cycle - which is one of the flaws of democracy that I have written about elsewhere in this blog. I have mentioned time and again, the democracies are too short term in outlook to solve long term problems. That is why his Reforms did not even mention anything about training more health care providers.

Currently, 91% of Americans say that they have health insurance. Out of that number, 83% rated their health care as good or excellent. This works out to 76% of all Americans rating their health care as good and excellent. What this means is that Obama wants to help the nine percent of the people who do not have health coverage and the 24% who feel that their health care is not good enough.

But without increasing the supply of health care, the additional 9 percent coverage will be at the expense of the 91% of the population. In reality, no government policy can ever benefit 100% of the population. You have to do the greater good for the greater number. Obama's plan will do the greater good for the smaller number which does not make sense. It should also be remembered that the nine percent of Americans not covered include the rich, the illegals, those in between jobs and those eligible for other government programs. Perhaps, only 5% are left who really needs help.

But it gets worse.

His program is going to cost a lot of taxpayers' money. How is he going to pay for it? To get elected, he has promised that there won't be a middle class tax increase. Only the rich will pay for it. This is popular with the majority of course and it is how votrepreneurs (politicians) win votes. Promise to spend on the majority by taxing the minority.

But this is also nonsense. Already, House Speaker Nancy Pelosi is proposing a 5.4% surtax and an 10% point increase in the payroll tax to fund ObamaCare. The surtax is a complete reversal of his promise not to tax the Middle class. But it is the payroll tax that is more damaging. An increase in the payroll tax should result in cuts in wages but the companies are forbidden to cut wages.

So this is effectively a compulsory rise in wage costs for the companies which is stupid at a time of recession. Any rise in wage will result in higher unemployment, smaller bonuses, lower salary increments and lower starting salaries. So the Middle Class will be made to pay for it indirectly. There is still no free lunch. Its just that the cost to the voters is not so obvious.

Even with the tax increase, the Congressional Budget Office (CBO) contradicted Obama's claim that his Health Care Reforms won't increase the Budget Deficit, now already in the trillions. Instead, it estimated that ObamaCare will add $64 billion to the budget deficit by 2019.

The whole affair is depressing. What happened was that Obama, a slick votrepreneur, promised the voters the moon and used his eloquence to con them into believing that he can deliver. After entering the White House, he hastily came up with a stupid plan that will worsen America's budget deficit, increase taxes at a time of recession and end up helping maybe only 5% of the population.

If the US is serious about improving health care to its citizens, they should see how others do it. Some experts, like Cynthia Ramsay, have rated Singapore's health care to be the best in the world, while the WHO has rated Singapore's health care system at 6th.

What's amazing is that Singapore spends very little on health care - only 3.5% of GDP as compared to 8.9% for Italy, 8.2% for the UK, 15.2% for the US and 11.2% for France. Life expectancy for Singaporeans is about 82 as compared to about 78 for British and Americans while infant mortality is also lower in Singapore than in the US or UK. See Wikipedia for life expectancy and infant mortality.

How does Singapore do it? While this complex issue is beyond the scope of this article, one key to Singapore's success at providing good healthcare at low cost to the taxpayer and the patient is to adhere to the dictum, "There is no free lunch".

Healthcare in Singapore is not free although the poorest people are subsidized up to 80% of health care costs. Once you give free health care, costs will balloon as patients demand the state to provide everything. Then you need to ration health services. There are horror stories in the UK where patients have to wait up to one year before an operation. By that time, you could be dead. This does not happen in Singapore even for the poorest patients.

So its possible to improve health care without increasing costs but ObamaCare is not the way to do it.

Thursday, July 23, 2009

The Spy who Hate me.

Recently, Congressional leaders were outraged at the CIA and Dick Cheney for allegely not telling them about plans to kill Al Qaeda leaders. Hello? Have they been reading their newspapers?

Ever since the Afghanistian war following 911, the US army has been dropping bunker busting bombs on suspected hide-outs where Osama bin laden may have been hiding. All this while the CIA has been using predator drones to bomb and kill Al-Qaeda leaders all over the world.

They are still doing it in Pakistan and Afghanistan under a Democrat President. Nearly all politicians, including Barack Obama, have publicly called for the killing or capture of Osama bin Laden. Now, they are suddenly outraged that the CIA has plans to assasinate him and other Al Qaeda leaders? Have Congressional leaders been watching TV? Of course, the alleged plans were for a more surgical way of killing such as by poison, a favorite method by the KGB. This is in fact a better method than dropping bombs from Predators as it would minimise collateral damage.

So what is happening? Votrepreneurs (my term of contempt for politicians) want to win votes. The ones bashing the CIA are Congressional Democrats wanting to please their voters must pretend to be outraged at the CIA for allegely not telling them about their plans during the previous (Republican) administration.

Earlier in the year, Senator Pelosi accused the CIA of misleading Congress. She claimed that she was unaware that the CIA was waterboarding Al Qaeda captives to obtain information. Her lie was exposed by current and former CIA directors who revealed that she knew all along. That she knew that such aggressive interrogation techniques were necessary to protect lives was obvious or she would have objected. But such methods are unpopular with her naive Liberal voters. So she lied and pretended not to know.

The more recent case of pretending not to know it was US policy to kill Al Qaeda leaders is even more ridiculous since it was plain to all who has eyes to see. You don't even need to be briefed if you watch TV. In war, you are supposed to kill your enemies.

But the upshot is that CIA agents are demoralized by all this. They are needed to protect the country from its enemies. This is not the way to run a war. But votrepreneurs don't care. Their main objective is promoting themselves. The welfare of the country, as usual, come second. They can't be loved by the spies at the CIA.

Wednesday, July 15, 2009

Democracy and the Financial Crisis - by Ohmyrus

According to a Congressional report by Darrell Issa, government intervention in the housing market is the main cause of the Financial Crisis.

The report explained how the Clinton administration in 1995 issued a National Homeownership Strategy, which weakens Fannie Mae and Freddie Mac's lending standards and insisting that banks 'work collaboratively to reduce homebuyer downpayment requirements.'

Clinton complained that in 1989 only 7% of mortgages had less than a 10% downpayment. It wanted that figure to be raised to 29%! Generally speaking, the businessman should be left alone to make their business decisions because he knows what's best for himself. The 'invisble hand' of Adam Smith ensures the optimum allocation of resources. Only in rare occasions where there is a market failure in the proper allocation of resources, should the government intervene. Why did the government intervene in this case?

It must be remembered that in a two party democracy, one party is fighting for the losers of society and the other is fighting for the winners. In the case of America, the Democratic Party is the party for losers. It tries to win votes from the bottom half of the income divide by promising to bring material goodies to their voters. This is normally done by redistribution policies ie taxing the top half and spending the money on the bottom half.

The Republicans, the party for the winners of US society, strives to cut taxes and minimise the transfer of wealth from their voters to their political opponents' voters.

So government intervention in this case, was not to make the economy more efficient or more prosperous but to win votes and hence power for the votrepreneurs (politicians) . Power comes with its perks and in Clinton's case, his chief perk seems to be access to loose women.

Monica Lewinsky: Freud beleived that people act out of sublimal desires which they are not even aware of. Was she also a cause of the global financial crisis?

But banks were reluctant to give loans to poorer people because they were higher credit risks. So Clinton toughened the Community Reinvestment Act forbidding banks to expand if they do not lend more (in effect) to Clinton's voters - the lower income groups, especially minorities.

The result was that banks ended up making a flood of mortgages they formerly refused to touch with a 100 foot pole. This fueled a housing boom. Many of these mortagages carried little or no downpayment. That's why they are called sub-prime mortagages. Voters thus were bribed for their votes by giving them housing they could not afford. But there is no FREE LUNCH. Someone has to pay. Let's see who.

The banks, of course, did not want to pay for the lunch given away by the votrepreneurs ie they did not want to hold on to these dubious mortgages. So Fannie Mae and Freddie Mac were told to buy up these dud mortages and repackaged them as Mortgaged Backed Securities. The Glass Steagal Act was also repealed to allow banks to do Investment Banking. This allowed them to repackage these dud mortgages into securities and sell them off to anybody who is willing to assume the risks of defaulting mortgages. Somebody else can carry the risks. Hey! Somebody has to be the sucker.

Private investors, fund managers, banks, pension funds bought them and eventually were made suckers when the property market crashed. But the biggest owners of Mortgaged Backed securities were Fannie Mae and Freddie Mac.

These two are government sponsored enterprises which Congress oversees. Bad deal for their shareholders. What this means is that Congressional leaders will want the two companies to behave in a manner that maximizes their votes instead of maximizing profits for the shareholders. So they ended up owning tons of these risky mortgaged backed securities at very high leverage. If things go belly up, which they eventually did, the shareholders loose their pants. But they are not the only ones to go trouserless.

You see, while Congress did not explicitly guarantee Freddie and Fannie's debts, there is an implicit guarantee. This means that taxpayers will loose their pants in the event that they go belly-up, which they did. Bad deal for taxpayers too. Now you know who the biggest sucker is.

So the bottom line is that the votrepreneurs (politicians) have arranged things in such a manner that taxpayers paid to vote them into office. But don't blame the votrepreneurs, its the system.

While the above description was basically what happened, the whole affair is a lot more complicated and its not just votrepreneurs that should be blamed. A host of characters also must share some of the blame for the financial crisis.

In no particular order, the first on the list is Alan Greenspan, former head of the Federal Reserve. Let's call him the Fedhead. Well, Mr Fedhead kept interest rates too low for too long. This flood of money encouraged speculation in the property market. Everytime, it looks like there might be a recession, the Fedhead turned on the money taps.

This encouraged people to suffer the delusion that recessions have been banished forever from Wonderland. Soon businessmen and consumers were lulled into complacency and they put on more debt. Actually, recessions are healthy for the economy. It weeds out badly run companies and redeploys capital and workers more efficiently.

The economy is like a forest. From time to time, there is a fire. Forest fires are simply a part of nature. So forest rangers should not try to put out fires. The fire burns away at the dead wood that collect at the forest floor and opens up clearings for new trees to grow. Similarly, a recession forces poorly run companies to go bust, creating space for younger, newer companies to emerge.

If park rangers keep putting out fires everytime lightning strikes, dead wood will collect on the floor. One day, there will be a fire too strong to control and the whole forest will burn down. So it is the same in the economy. The Fedhead kept 'putting out the fire' and thus allowed inefficiently run companies to survive. Complacency set in and these companies piled on more and more debt. The consumers also put on more debt like the forest accumulates tinder.

Then one day we get a severe recession and global crisis that they cannot control - like now. It is better for the Fedhead to allow frequent but smaller recessions to take place than having a huge one like what we have now.

The next on the blame list are the bankers and fund managers. These guys 0n Wall Street get huge bonuses by gambling with other people's money. They system goes like this - heads we win but tails you lose. In the case of bankers, they geared up their companies to make risky loans or buy risky assets. When the going was good, the banks reported fat profits and the executives collected fat bonuses. Shareholders also win.

This encouraged them to take on risky behavior - since they do not generally suffer personal bankruptcy if their banks go bust. The more they leveraged their banks, the more money they made. When the banks go bust, they still get to keep their bonuses earned in previous years. But you, the shareholders get wiped out.

In this current financial crisis, while initially banks were initially reluctant to retain mortgaged backed securities in their books, prefering to sell them, they eventually did so. They wanted to enhance their earnings and hence their bonuses. If the mortgages default, its the sharholders to bear the loss while they get to keep all their bonuses during the good years.

Its the same with hedge fund managers. These guys collect money from their clients to buy financial assets like stocks, derivatives, mortgaged back securities etc. They also used leverage. If they market goes in the right direction, they make more money for their clients who will pour in more money into their funds. During good times, they collect fat fees from their clients.

But when the market crashes, their clients often get wiped out. But they also get to keep their fat fees earned during the good years. In a nutshell, bankers and fund managers gamble with other people's money. They get to grow rich during good times and suffer no losses during bad times, prompting them to take huge risks with other people's money.

The nature of the financial markets is that crashes are inevitable and their shareholders or clients will one day be wiped out given the high leverage. Heads we win and tails you lose. Sooner or later, you are going to lose. But they won't go to jail in a paddy wagon like Bernie Maddoff. Instead, they can sail to Bermuda in their yachts.

That is why I cannot understand why Bernie Maddoff ran a Ponzi scheme. Not only is he a crook, he is a stupid crook. Doesn't the clown know that Wall Street gives you ample opportunity to cheat people the legal way?

The next one on my blame list are the credit rating agencies. There are three large rating agencies - Moody's, Standard and Poors and Fitch. These guys are supposed to give their opinion on various financial instruments. Unfortunately, they get paid by the guys whom they are supposed to rate! This is one time when competition is bad for you. If one agency gives you lousy ratings, you go elsewhere. In the end, risky assets like Mortgaged Backed Securities got high ratings. Its like your boss asking you what you (honestly) think of him.

While the blame for this financial crisis can be spread fairly wide, the largest share of the blame must fall on the votrepreneurs (politicians) and the political system that produced them. After all, it was they who encouraged the growth of sub-prime lending so that they can win votes. That was how this mess got started.

We need to reform the system in such a manner that the personal interests of the political class coincides with the nation as a whole. Unfortunately, the current system makes it worthwhile for the votrepreneurs to behave irresponsibly and betray the very people they were elected to serve.

What can be done about it? The key is to empower the taxpayers whose money is used to bribe voters so that votrepreneurs can win office. Paying taxes is the chief contribution an average citizen makes to his country. Those who pay more taxes must have more say as to how that money is to be spent. That is why America's Founding Fathers restricted the vote to those who paid taxes. They understood the linkage between taxation and representation. That was why their complaint was, "Taxation without Representation is tyranny."

Today, all too often we have Representation without Taxation and it is also tyranny.Those who pay little or no taxes have more power to decide how to spend taxpayers' money than those who paid most of the taxes. The result is to make everyone poorer. In my earlier article, Lessons from the Ancients, I have proposed some solutions that can empower the taxpayers without sacrificing the one-man-one-vote system. Its time for reform or America will go the way of hyper-inflation and economic decline leading to the collapse of democracy itself.

Sunday, July 05, 2009

Bernie Ecclestone's Hitler fascination - by Ohmyrus

The Billionaire Boss of Formula 1 racing stepped into a minefield when he publicly praised Adolf Hitler.

He said that Hitler could get things done and added that democracy "hasn't done a lot of good for many countries, including this one".

This is the sort of thing I feared when I started this blog. In my very first article, I warned that if democracies cannot solve its problems, people will turn to a strong man, a Hitler perhaps. This is something nobody wants.

While a lot of people condemn Bernie's words, especially Jews, it is really a cry for help. He can see, as I do, that democracy is not working to give people better lives. In fact, I would say that most democracies are disfunctional.

The problem is that the system is incapable of producing effective rational government. I have analysed why this is so in many artcles. So I won't go into detail. In Business School, students are taught a subject called, 'Organizational Behavior'.

Organizations must be designed with a reward/punishment system that encourages employees to behave in a manner that ensures the companies' survival. In the same way, democracies must have constitutions that rewards its political leaders that behaves in a manner that ensures the survival of the country.

This is not so today. The chief weaknesses are that it produces short term thinking, encourages disunity of the people, avoidance of necessary pain, promotes welfare states and a illogical immigration system. Sooner or later, the whole system will break down unless intelligent reforms are made.

But first, people must accept that the system is broken. I fear the words of John Adams 2 is coming true:

Remember, democracy never lasts long. It soon wastes, exhausts, and murders itself. There never was a democracy yet that did not commit suicide.