The Howard Beal election

It's hard to turn on the TV these days. The news and images from Washington are like a train wreck. The height of hypocrisy: the crooks who made this mess posturing for a bailout on the backs of the taxpayer... looking stern and serious while they sit in gilded offices paid for by the investment banks and mortgage firms -- those that provided them with cheap loans to their poor constituents, while profiting handsomely from complex, opaque financial instruments that no one understands. While Washington slept the market ran wild, fueled by impossibly cheap money and overabundant credit. The Wall Street Journal ran a picture of J.P. Morgan the other day. He looks like a banker: stern, serious, practical. I wonder if he'd have given people $400,000 stated income loans; not a piece of paper to prove their earning or their ability to pay it back. That's what we did in the hyper-fueled lending world of Freddie and Fannie. You need to buy a house. Can't afford it? No problem, we'll cover you. Can you imagine J.P. Morgan doing anything so stupid?

And now comes the final indignity: the "bail out". The House yesterday decided not to pass a $700 billion bailout bill. They did so to prove that we are still a free market. They did so to save their reelection chances. They did so to protest the Bush Administration and their total mishandling of this crisis from start to finish. Whatever the reason: it failed. And rightly so.Does anyone really think that the Bush, Paulson or Bernanke have any idea what is really going on here? Fortune Magazine reported last week that the $700 billion number that Paulson chose has no analysis behind it:

"It's not based on any particular data point," a Treasury spokeswoman told Forbes.com Tuesday. "We just wanted to choose a really large number."

Wow. How comforting is that? We know that markets operate on psychology, and that the large number is designed to provide confidence in the market that the government has a big enough solution to take care of the problem. I understand that.

But I also understand something that George W. Bush and his team have never understood: this is also a political issue during a presidential election. The Bush Administration remains totally tone deaf to the concerns of the American people. While the $700 billion number may calm financial markets, it has shocked, dismayed and infuriated the American taxpayer.

Hello? Is anyone out there? Does George Bush really want Barack Obama to become president? It sure looks that way.

In fact, Bush's handling of this issue looks a lot like the war in Iraq before General Petraeus went to Baghdad. It looks incompetent, poorly planned and poorly executed. It looks just like the mess that Gens. Casey and Abizaid got us into, with American soldiers dying daily amid violence and chaos on the television. Total mis-management. The American people lost confidence in Donald Rumsfeld in 2004. And what did the President do? He held his course, kept Rummy on and took a beating in the 2006 midterm elections. Bush was shocked to take such a shellacking. He didn't understand the level of discontent among the voters then -- and he doesn't understand it now. Americans in vast numbers are angry at Washington. Mad as hell, as Howard Beale famously yelled out the window in the movie Network. And they aren't going to take it anymore.

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Who will pay the ultimate price for this debacle? John McCain. He's been swallowed whole by this mess and his campaign will never recover. Yes, he miscalculated -- the whole "suspending his campaign" gambit backfired. Frankly, his instincts on the bailout were wrong; his behavior showed him as a legislator. A compromiser. Not as an executive who had to make a tough call in a crisis. He temporized and vacillated.

In fact, McCain missed a golden opportunity: He could have taken the momentum and initiative away from Obama and come out forcefully against the bailout from the beginning. He could have stood up in the debate and said:

I'm against this because I don't believe in taxpayers footing the bill for what is essentially a $700 billion entitlement program. Yes, I know the situation is serious and that we need to provide relief to the credit markets. But there is a better, less-intrusive way to do this: change the "market-based" accounting rules so that firms can revalue their portfolios to something that reflects their true intrinsic value. Provide loans and guarantees that the firms will pay interest on, etc. etc. etc.

But McCain didn't do that. He didn't see the opportunity for bold action and decisive decision-making. He could have put Obama in a corner. And with public opinion running 2:1 against the bailout, the polls would have been on his side.

In the end, this is the kind of crisis that either makes or breaks a candidate. The odds were against McCain from the beginning, but his handling of this issue has fallen short. He was dealt a bad hand by Bush and his bumbling lieutenants; in this case, running against Bush would have been smart for McCain. But it was the kind of "game changing" opportunity that comes about only once in a campaign. If you seize it, you win. If you don't, you lose.

So far, McCain hasn't seized it, and unless Palin pulls out a miracle against Biden and McCain can rally in the last two debates, the Republicans will lose on November 4.

Lewandowski the myth-buster

When oil is not in the headlines, wind and solar energy gets the ink. Renewable energy is seen by some as the fix for a world fouled by carbon emissions. Government subsidies and credits are up for grabs by utilities abandoning fossil fuels and “greening up” their power sources. Most states mandate renewables in their power mix. Oilman T. Boone Pickens has weighed in with his own wind-based plan. Can there be any doubt about the causes and solutions to America’s energy nightmare? Indeed there is some doubt, and in Colorado, world-class skeptics find great comfort in Stan Lewandowski, Jr., General Manager of the Intermountain Rural Electrification Association Cooperative in Sedalia. Larger-than-life, he is a philosophical brother-in-arms to Ayn Rand’s Ellis Wyatt, (Atlas Shrugged), who torched his oil fields rather than knuckle under to government regulations.

Lewandowski is nothing if not colorful on energy. He recently snubbed Governor Ritter’s invitation to join a utility task force seeking ways to reduce carbon emissions. To Stan, Al Gore’s credibility matches that of Saddam Hussein. He views An Inconvenient Truth as a timely fabrication supported by incomplete data and designed purposely to shut off rational debate on global warming. When researching the Kyoto Accords and extrapolating for the unlikely impact of full compliance, Stan’s arithmetic shows a minimal impact (four tenths of one degree Fahrenheit) on global temperatures by the 22nd Century.

So it should come as no surprise that he would routinely quote Oklahoma Senator James Imhofe by saying that the threat of catastrophic climate change is “the greatest hoax ever perpetrated on the American people”. It could easily have been his line. Give him a few more minutes and he’ll make a compelling case to prove it too. All this while reliably delivering electricity to Colorado as cheaply as it comes.

Lewandowski is no masked man, but nibbles at the edge of legendary status after 34 years in his IREA position, providing electricity to 137,000 customers in central Colorado. The Polish Catholic son of a union steward out of South Chicago, his working class values are those of Harry Truman’s Democratic Party, his inspiration, the life of John F. Kennedy. More than a few of his relatives were fingerless or amputees who barely survived the rough and tumble industrial life of his neighborhood. His maternal grandmother raised nine children by herself after her husband was killed by a freight train.

Stan’s movement rightward began with a growing disillusionment in his twenties, and he was deeply shaken by JFK’s 1963 assassination. Working the REA’s D.C. beat at the time, he witnessed firsthand, the uneasy crosswinds of change ushered in by Lyndon Johnson’s Great Society entitlement programs. His epiphany moment with the imperious LBJ and his changing party principles is told in a story about Johnson walking across the White House lawn. A marine salutes the President and says, “Your helicopter’s ready sir”. The President’s response is “They’re all my helicopters son”.

Call him a Conservative or a Libertarian; he’ll likely smile at either label. There’s no mistaking his managerial goal: providing reliable electricity at a low cost. IREA never raised it rates from 1982 to 2004 and recently refunded over $9 million to customers. Yet, in an age that ruminates about social justice and egalitarianism, he’ll also tell you that social services are nowhere in his contract to deliver. This impolitic thinking makes Mr. Lewandowski a hot potato in these parts.

He rankles environmentalists with a well-articulated, firmly entrenched belief that coal-fired plants are a critical interim bridge to America’s strategic long-term energy calculus. At the very least, any limitations on the construction of coal-fired plants will exacerbate looming capacity problems, reduce the U.S. standard of living, and have a crippling effect on the economy.

Lewandowski supports nuclear power unequivocally, noting that not one American has ever died from an accident at a nuclear power plant. On the other hand, Stan has a healthy skepticism about the prospects of wind and solar power, seeing them as impractical in the near term and maybe forever. The unvarnished facts are that wind is unreliable, far from power grids, and needs to be backed up by high-cost gas-fired plants to provide uninterruptible service to customers. Wind proponents make no mention of this collateral data. When additional distribution lines are factored into already enhanced capital outlays, project costs can become prohibitive.

The crowning insult to environmental interests was his July 2006 letter sent out to all 900 energy cooperatives in the U.S. It sounded a clarion call, alerting them to the implications of global warming “alarmists” and the attendant economic costs of greenhouse gas regulation and cap and trade schemes. Lewandowski’s arguments were extensive, well-reasoned and backed up by 31,000 other scientists who have rejected outright, the assertion that global warming is a human-controlled, carbon-based phenomenon.

Lewandowski never backs down. Even after his enemies in the green press skewered him for spending IREA cooperative funds to buttress his politico/economic points, he is unbowed. The fire in his eyes is sharply kindled. Maybe it’s just that he’s a grown-up city kid, spoiling for a good fight.

In rejecting the catastrophic impacts of greenhouse gases, Stan uses a non-emotional, clinically frank style buttressed by government and industry statistics. He brings the core argument home as a pocket-book issue, of late harshly criticizing the economic impact of the proposed Lieberman-Warner Climate Security Act.

The bill’s basic mechanism allows for the establishment of carbon emission limits for all businesses that are sharply reduced over time. Corporations not in compliance would be required to buy or trade for costly permits to ensure continued operations, the effect of which is an indirect tax transfer that would be passed on to consumers. If the bill passes, Stan cites the following economic consequences in his July Watts and Volts newsletter:

 Household income reductions of up to $7,328 by the year 2030 (U.S. Energy Information Administration).

 A $1.21 Trillion increase in energy prices between 2009-2018 (Congressional Budget Office)

 The loss of 3-4 million jobs and electricity price increases of 77-129% by 2030 (National Association of Manufacturers)

At 70, Stan still delivers jolting roundhouse blows to the opposition. In the same newsletter article, he quotes Vaclav Havel, President of the Czech Republic. “The largest threat to freedom, democracy, the market economy, and prosperity at the end of the 20th century and the beginning of the 21st century is no longer socialism. It is, instead, the ambitious, arrogant, unscrupulous ideology of environmentalism”.

Provided he stays robust and his wife and family are in good health, Stan will remain influential, principled, courageous, and perhaps, even victorious. He is not the insensitive maverick his detractors would have you believe. Truth be told, his flip side is a study in compassion and empathy.

Ask any employee, customer, or his union. No arbitration for 15 years and no grievances that anyone remembers either. A remarkable 25% of all employees have over 20 years of tenure, with 12 of them over 30.

A revealing vignette involves an Ethiopian friend, Wondalem Wolde, earlier employed as a doorman. While visiting D.C. years ago, Stan left his room for a cigar. Outdoors, he struck up a conversation with a young immigrant chasing his own American dream. Stan listened intently, gave him his card and told the man to look him up if his vision took him to Colorado. Indeed, it eventually did. Stan got him a job as a meter reader and one later for his wife as a receptionist. Wondalem is now a mechanic and his family successes have allowed him to sponsor 15 other relatives from the impoverished Horn of Africa.

In Douglas County, Stan is still “The Man”, a JFK profile of integrity and balance. His prediction is that global warming and its attendant insanity will collapse under the weight of its own irreconcilable science and economics. While we cannot be absolutely certain he is right, none here doubt him or his principles.

Joe Gschwendtner is a Castle Rock businessman and free-lance writer.

Health care: What we can do

The problems with our health care system stem not from too many market forces, but from too little. Editor: So argues Joshua Sharf, a regular on Backbone Radio and now also a candidate for the Colorado House, in his platform plank on health care. This and other issue statements appear on his website. For comparison, here's the website of his primary opponent. Below is the Sharf plank in full.

Health care in the United States is among the best in the world, but practically nobody likes the system. Our private insurance system is incomprehensible. Our public systems - accounting for fully half of healthcare spending - are expensive, restrictive, inefficient and unfair.

As a result of IRS rules, dating from WWII wage-and-price controls, exempting employer-paid insurance from income tax, many people even make job decisions based on the availability of health insurance.

Some have used this discontent to push for even greater government interference in the system. Calls for mandates, single-payer insurance, even socialized medicine, have become commonplace. The Governor's 208 Commission was stacked with members pre-disposed to further state intervention. The Commission rejected the one free-market proposal presented to it.

In addition, insurance is expensive because we're over-insured. If we bought car insurance like we buy health insurance, we'd have coverage for oil changes, and all have special truck-bed insurance, even for our sub-compacts. Typical health insurance cover routine needs that, for the most part, we could easily afford. And we are required to buy services that we will likely never use.

The government is simply not capable of determining what insurance best fits each of us. We are.

And for these services, we're not spending our own money. We see absolutely no monetary benefit from making smart consumerist choices in our health care. Therefore, there is no incentive for us to save money. Thanks to services like WebMD, we are increasingly consumerist when it comes to our treatment; there is no good reason why we can't adopt similar consumerist attitudes when it comes to payment.

The problems with our health care system stem not from too many market forces, but from too little. The solutions to our health care lie in re-introducing market forces.

Health Savings Accounts, combined with high-deductible catastophic insurance, provide the most efficient, most affordable combination of coverages.

While Medicare and prescription drug reform will have to wait for federal action, there is much we can do at the state level to make insurance and care more afforable for our citizens. We can:

* Change Colorado's Medicaid to more closely resemble HSAs, along the lines of South Carolina's reform;

* Encourage the use of Health Savings Accounts;

* Allow Coloradoans to buy out-of-state health insurance plans to encourage competition;

* Remove restrictions on walk-in clinics to allow Target, Costco, Wal-Mart to provide affordable basic medical care;

* Require hospitals and clinics to make outcome data available for informed consumer comparison.

Why the Statehouse Matters

“The Presidency is the ultimate prize.” “Congress matters most for the issues I care about.” “The world won’t end if the other side takes over our statehouse for a while.” Listen to the political talk for any length of time, and you will hear those three thoughts expressed. You have probably expressed them yourself. Are they generally true? Yes. But they’re not the whole story. Important as the stakes are in Washington DC for this election year, it also matters a great deal who holds the governor’s chair and who leads the legislative majorities, down at your state capitol. Note: The Claremont Institute, for whom I'm a senior fellow, was asked by a business group to spotlight some of the states where a political power shift has had adverse consequences for citizens and taxpayers. My own state, unfortunately, came to mind first, and four others quickly followed. This is the report I compiled for our clients as they mobilize for election 2008.

Depending whether the party in power tends to want more freedom or more government, your livelihood, your liberties, and your values will either thrive or suffer. Your state will either compete in the national and global economy, or it will lag behind. Those are the stakes and nothing less. Which way it goes is up to your neighbors and you.

Experience in a number of states during this decade illustrates the point. We’ll look at the dramatic gains for labor unions and the green lobby in Colorado; whopping tax increases in Michigan and Wisconsin; and the spending spree in Montana and Arizona. Other examples abound across the country, but these five are representative.

Before reviewing the record, let’s be clear about a phrase used above, “the party in power.” That doesn’t necessarily mean Republicans vs. Democrats. As Montana State Rep. John Sinrud observed, “Sometimes it’s a matter of what kind of Republicans.” Or again, as Arizona taxpayer activist Tom Jenney related, “A Democrat voted with us to stop a tax hike after two from the GOP deserted.”

So our focus here will not be on partisan stereotypes. It will be on philosophies of government. Now for those case studies from the states.

Colorado’s Big Chill

During the 1990s and into this decade, under governors of both parties and with a Republican legislature, Colorado was widely admired for its strong business climate, stable tax and regulatory atmosphere, and innovative policy models. Democratic Gov. Roy Romer helped lead the national movement for education standards. His successor, Republican Bill Owens, was named “America’s Best Governor” by National Review.

Things changed abruptly after Democrats captured first the legislative branch in 2004 and then the executive branch in 2006 through a combination of their dynamism and Republicans’ complacency. The term-limited Owens cast over 100 vetoes of anti-business and anti-family bills, but was forced into unfavorable terms for a tax-and-spend package demanded by Democrats. When Bill Ritter succeeded him in 2007, the floodgates opened.

Less than a month in office, Ritter was presented with a bill to overturn the Colorado Labor Peace Act after more than 60 years of bipartisan support. He rejected it but soon repaid the unions with an executive order mandating collective bargaining for all state employees. Renewable energy mandates, a Carbon Fund, and an adversarial rewrite of the state’s oil and gas regulations signaled his indebtedness to the environmental lobby. Over $1 billion in oil and gas investment fled the state in Ritter’s first year. Undeterred, he is now pushing a ballot issue to raise severance taxes on oil and gas.

Meanwhile, the Democratic legislature is weakening tort reform and worker’s compensation to accommodate the trial lawyers, pushing toward single-payer health care, and stalling on highway programs. Speaker Andrew Romanoff has another ballot issue that would repeal the constitutional restraint on annual growth of state spending.

Certainly all these changes have their enthusiastic proponents. But the cumulative effect is sure to drive down Colorado’s 7th-best national economic ranking (“Rich States, Poor States,” www.alec.org). Colorado business knows now, if it didn’t before, why the statehouse matters.

Michigan: Insult to Injury

Michigan, the onetime industrial powerhouse of the Midwest that has been mired in a one-state recession since 2001, didn’t experience same kind of the political sweep that Colorado did. Only a few seats in its state House of Representatives switched parties in 2006 after a massive spending campaign by liberal activist Jon Stryker.

But the installation of a Democratic House majority to partner with Democratic Gov. Jennifer Granholm has really changed things in Lansing, and not for the better as far as taxpayers and small business are concerned.

Working with Speaker Andy Dillon, Granholm wooed enough moderates in the narrowly Republican Senate to pass huge tax increases, 12% for the income tax and 22% for the business tax – despite grim trends that have seen personal income declining in the state every year since 2004, companies shutting down or relocating, and many residents moving away (unless trapped by mortgages that exceed their shrinking home equity).

“We have the 5th highest-paid state workforce in the country, yet legislators prefer raising revenues over cutting expenditures,” laments Leon Drolet of the Michigan Taxpayers’ Alliance. “One big employer, Comerica Bank, recently left the state. Who’s next?”

As a cry for help and a warning to “everyone in Lansing,” Drolet’s group has sparked a recall drive against Speaker Dillon, which will be on the August ballot if proponents can weather a swarm of court challenges. But the damage is already done for a Michigan economy that was 50th in job creation and 49th in personal income growth over the past decade (“Rich States, Poor States,” www.alec.org).

Wisconsin’s Near Miss

A bad dream very similar to Michigan’s – one legislative chamber changing hands, quickly followed by open season for the tax hikers – befell neighboring Wisconsin last year. Democrats rode the 2006 congressional tide to gain 8 seats in the state House, where Republicans clung to control, and 4 seats in the state Senate, taking control. It was the moment Democratic Gov. Jim Doyle had been waiting for.

His Senate allies startled the country with a $15 billion universal health care plan, bigger than all the rest of Wisconsin’s budget put together. Along with that came well-supported Senate bills for a hospital tax, a car rental tax, and – bizarrely timed, considering the trend of the economy – higher gas taxes as well as a doubling of the tax paid upon selling a home.

“We beat all of them in the House,” says Deb Jordahl of the Wisconsin Club for Growth. “House Republicans found their backbone,” she adds, with the help of her coalition – business and taxpayer organizations, pro-family groups, and other players outside the two-party orbit.

But Jordahl worries that the GOP’s three-seat edge in the House may not survive a tough election season this fall. If that happens Wisconsin’s economy, already sagging in the bottom half of ALEC’s “Rich States, Poor States” ratings, both its scorecard for the decade past and its outlook for coming years, may take another hit from big government.

Montana Spending Spree

The pattern continued in Montana, on much the same timeline as Colorado. Prior to 2004, Republicans held both the executive and legislative branches, and fiscal discipline was the rule. But that year, Democrats took the governor’s office with Brian Schweitzer, gained control of the state Senate, and wrestled the 100-member House to an exact tie, resulting a power-sharing arrangement for leadership. The economic consequences were not long in coming.

Montana’s budget has increased 50% in just four years under Gov. Schweitzer, according to Rep. John Sinrud, chairman of the House Appropriations Committee. Sinrud says Republicans’ return to a one-seat edge in the House (50-49 plus a Constitution Party member who votes with the GOP) hasn’t been enough to halt the spending spree, as the governor is often able to pull several moderate Republicans his way.

Hence Sinrud’s cautionary remark, quoted earlier, that “it’s a matter of what kind of Republicans” comprise a legislative majority. Nominal control by those with an R by their name doesn’t always translate to working majorities for limited government and restraint on taxes and spending.

John Sinrud also describes how Schweitzer in Montana, like Bill Ritter in Colorado, consistently does the bidding of the environmental lobby and the labor unions, public employees in particular. The Democratic governor has notably fattened the retirement systems for teachers and the state workforce in gratitude for their political support.

Frustrated with his GOP colleagues and harassed in his architectural firm by Schweitzer’s regulators, Sinrud says he’ll pass up reelection this year in order to form a citizens’ group “to apply pressure from outside.”

Arizona: Bipartisan Bloat

There could be no better example than Arizona of our initial point that it’s the reigning philosophy of government, not the partisan stereotype of R or D, which determines a state’s course.

Democratic Gov. Janet Napolitano has consistently faced a Republican-led legislature since taking office in 2003. Yet she’s gotten her way fiscally year after year by making deals with some of the easy-spending Republicans in the House and Senate, exactly as we saw with her counterparts in Montana and Michigan.

The GOP edge in Arizona is two senators and three House members. It only takes a few weak links to break the chain. Leaders have tended to settle too low in budget negotiations ever since their hard line in 2004 was repudiated by a dozen members defecting to the Democratic position, which handed Napolitano a 12% spending increase. That’s the analysis by Tom Jenney, Arizona director of Americans for Prosperity. He says she has won annual increases of that much or more, ever since.

The last couple of years it’s been closer to 15% growth in spending, according to Rep. Russell Pearce, chairman of the House Appropriations Committee. “She owns the negotiation when it’s clear our party can’t deliver real majorities in either chamber,” Pearce says.

He and Jenney both observed that the legislative spending culture is now so entrenched, and Napolitano’s hand is so strong, that borrowing and bonding schemes will likely be utilized in lieu of budget cuts to meet the looming deficits of this year and next as the economy softens.

Times have been good in Arizona of late. The state was 2nd nationally over the past decade in both job creation and in-migration (“Rich States, Poor States,” www.alec.org). Politicians obviously felt they could afford the open spigot that has pumped state spending from 5.4% of personal income in 2003 to over 7% today. But there’s a consequence for such government bloat. Arizona’s competitiveness and attractiveness will eventually suffer.

Conclusion: Our Responsibility

The statehouse matters greatly to your business, your family, and your future, whichever of the 50 states you call home. That’s vividly illustrated by the examples we’ve looked from Arizona and Montana, Wisconsin and Michigan. I see sobering evidence of it every day from the Claremont Institute’s office within view of the Colorado state capitol.

Who sits in the White House after January 2009 makes an immense difference for America and the world, to be sure. Likewise, it’s vitally important whether the U. S. Senate and House are committed to limited, constitutional government or to unlimited, progressive government.

Yet we’re still a union of states, and in those less-publicized 2008 races closer to home, the stakes for liberty are high. Our responsibility as citizens isn’t either-or. It’s both-and.

208 rationale flunks Econ 101

Sound market economics is missing from a 208 Commission spokesman's recent Denver Post piece defending their recommendation for the legislature to mandate health insurance. Chairman Bill Lindsay would have us believe that the uninsured are cost-shifting their unpaid bills onto the insurance premiums of common, everyday folks. In fact, the uninsured are on the bottom of the totem pole and bear the brunt of the cascading effect of cost-shifting down from large players above them. Remember, government, which represents half of all health care payments, is reimbursing providers 25% to 40% less than provider costs. And, while big insurance companies seem to pay more than costs, they still pay far less than the retail prices charged to the uninsured. Insurers can use their clout to negotiate hefty PPO and HMO discounts.

What rarely gets mentioned is that the uninsured have their meager incomes taxed heavily up front to pay for Medicaid for the poor and Medicare for the elderly. The unreimbursed expenses of illegal aliens are also factored into the prices these people are charged. Maybe if they were relieved of this regressive burden they could start to buy insurance for their children and themselves.

What Mr. Lindsay and the Commission seemed to have missed entirely is that until systemic changes are implemented to reduce health care costs across the board, the uninsured will not be able to avail themselves of affordable coverage. Until then it is just a game of government and large insurance companies getting what they need to make their constituencies happy and the rest of us having to pay jacked-up rates.

Sure, hospitals want their bad debts to go away and insurance companies want an easier time selling policies. But, to do it through coercion and mandates makes a mockery of the legislative intent behind the 208 study process. It’s also bad economics.