CAFE Policies Prove Some Politicians’ Ignorance of Economics

In 1975, The US Congress passed laws forcing automobile manufacturers to increase the average miles per gallon for cars below a certain weight. The Corporate Average Fuel Economy, or CAFE standards were born. The law, created in the wake of the 1973 Arab Oil Embargo, was designed to decrease the nation’s consumption of foreign oil. This was a reasonable goal. However the method was doomed to fail. As fuel prices fell following the embargo, and as the cars produced for sale in the US became more fuel efficient, the cost to operate them fell. As the cost to operate them fell, more people bought cars and consumed more gas. In 1970, the US imported 20% of its oil. We now import roughly 60%.1 Further, 2006 was the first year in 25 plus years that Americans decreased their average miles per vehicle per year.2 What happened in 2006? There was a significant price increase on fuel. The CAFE standards failed to achieve any reductions in our consumption of fuel. Instead American’s just drove more.

Its quite simple really. If you decrease the price of something you increase the demand. If the decreased price and subsequent increased demand result in a higher consumption of the product, then the attempt to decrease consumption is a failure. So is the case with CAFE standards. Some may say, so what? So the standards failed to prevent fuel consumption. In many ways, that is a fair question.

Unfortunately these policies have had a very serious cost in human lives. In order to accomplish the standards, cars were made from less protective stuff. Lighter materials were used to improve fuel efficiency at the cost of protection of the occupants. Remember the Chevrolet Geo? Imagine one of those in a wreck with an 18-wheeler. In 1999 the USA Today reported, using National Highway Traffic Safety Administration data, that since their inception, the CAFE standards resulted in over 46,000 additional deaths on American highways.3 That is nearly as many deaths suffered by the US during the entire Vietnam War. Further, the National Research Council concluded that in 1993, there were between 1,300 and 2,600 unnecessary deaths due to the changes in vehicle mass and weight imposed by the CAFE standards.4 That is more dead Americans per year than produced per year in the war in Iraq.

Yet, what now from our government? Last week, Mr. Obama demanded that the standards increase from 27.5 miles per gallon to 35 miles per gallon by 2011; in just 1.5 years. That increase will mean lighter vehicles and more deaths. "Hoping" for new technologies resulting in lighter, stronger materials is not a method for saving lives. If the technology could have been produced it would have been. The results of the above mentioned studies reflect that is not the case. And placing the deadline of 2011 is an absolute means of ensuring that either the car builders of the world will pay enormous fines, or many Americans will perish in lighter vehicles.

Granted, the goal of decreasing our dependence on foreign is an appropriate bull's eye. Even if the goal is purely environmental, which for many these standards are, the means will not accomplish the end. These new standards WILL NOT decrease consumption. The deaths of Americans will come as the cost; but as the past almost 35 years have shown there will be no benefit. If you improve efficiency and thus decrease the cost to operate the vehicle, the use of the vehicle and thus the consumption of gas will increase. Basic economics. Unfortunately, our government, just doesn’t get it.

Mark

1Mark Levine, Liberty and Tyranny, 2009

2Gasoline and the American People, Cambridge Energy Research Associate, 2006. http://www.cera.com/aspx/cda/public1/about/about.aspx

3James R. Healey, "Death by the Gallon," USA Today, July 2, 1999

4Mary Katherine Ascik, Fuel Efficiency Regulations Cost Lives and Money, National Center For Public Policy Research, August 2002. http://www.nationalcenter.org/NPA427.html

Healthcare and Rent Control: What Happens When Government Sets the Price

There are two very good examples of the economics of government price controls: rent control and government medicine. Each of these can easily be dissected for conclusions on what happens when government sets the price.

Most government healthcare plans cost the people who are using them nothing. Some have minuscule co-payments. Meaning, the government sets the price for healthcare at zero dollars. This is perhaps the most aggressive example of government price controls. Another example is rent control in inner cities. Both show the undeniable fallacies of government involvement in the free market.

Numerous cities worldwide attempted to create “affordable” housing by enacting rent control. Essentially, the government sets a ceiling the landlord can collect for rent. As the price falls, the number of people supplying housing falls. Within three years after rent control was imposed in Toronto, Canada in 1976, 23% of all owner occupied rental housing was withdrawn from the market. As the ability to recover expenses falls, builders produce fewer housing units to place on the market. This decreased supply with an inflated demand due to an artificially low price creates a shortage of housing. In a 2001 study in San Francisco, more than 75% of rent-controlled housing was more than 50 years old. After Massachusetts enacted a state law banning rent control laws some communities saw residential housing construction begin for the first time in over 25 years.¹

Further, the shortage that results when government sets the price means landlords can always find a renter. Unlimited demand coupled with decreased reimbursement means a decrease in quality. Why would any landlord spend more to keep the place up if he is guaranteed renters, and can only collect what the government allows? Whenever the government fixes the price, quality suffers.

The black market in housing is so prevalent that it even made it into an episode of “Seinfeld.” In San Francisco, in the 2001 study mentioned above, more than 25% of households living in rent-controlled units had incomes greater than $100,000.00. Seems the artificially lower costs led to the black marketing of rentals inside the city.

Government healthcare is another great example of what happens when a third party sets the price. Whenever something is free or nearly free, there are no barriers to its use. When there are no barriers to its use, there is no medical complaint too small. Abuse of the emergency department by people who do not see the cost of that care is rampant. People are using the emergency department for minor ailments that often times need not see a physician at all, let alone the emergency department. When no complaint is too small, there is no end to the demand and no supply that can meet the demand.

As patient visits skyrocket for minor illnesses, supply is often met by decreasing the time the physician has with the patient. This often places physicians in difficult situations. The more rushed the provider, the higher the likelihood of a mistake. Another quality impact to fixed pricing. Many friends who started in medicine left because they felt the risks were too great as they were asked to see more patients in a day than safely possible. Too, as the length of the visit decreases, the number of visits required for fixing a problem often increases. A study of government healthcare in Japan revealed that while politicians were able to say the cost per visit had decreased, the actual cost to heal the ailment increased due to a need for more visits over time.² Go government healthcare!

At many hospitals, a quasi barrier to use has developed as wait times in the emergency departments have jumped. This barrier is risky, and significantly impacts quality because numerous times patients who are genuinely ill leave before being seen. In socialized medicine, the “wait” barrier takes on astronomical dimensions. In Britain in 2001, more than 10,000 people waited 15 months or more for needed surgeries.³ Seems the supply of surgeons has fallen off with price controls.

In certain economic areas, price controls have driven doctors out. As the doctors leave the shortage is worsened. Those doctors who remain have no need to maintain quality and service because all their appointment slots are filled due to an excess demand. Demographic data studying health statistics show drastic deficiencies compared to other areas of the country. Despite all our good intensions, the result is a further decrease in quality.

Whenever government sets the price, four things typically happen: 1^st, there is a significant increase in demand, 2^nd, fewer people supply the product or service resulting in a shortage, 3^rd, quality decreases and a 4^th, the emergence of black markets happens nearly overnight. Both in rent controlled housing and healthcare these all exist. So, government intervention is not the answer. But how can a minimum wage earner be expected to pay $800.00 for a bone scan? There is an answer, but you’ll have to wait for a coming blog…

Mark

^1,2,3Thomas Sowell, Applied Economics, Basic Books. New York: 2004.

Our Choices Matter

I was recently explaining to a patient that certain “high risk” behaviors carried unfavorable consequences. The young man had chosen to live a promiscuous lifestyle, engaging in unprotected sex with numerous partners. I treated him for the benign transmitted disease of this visit but warned him it may not be so easy next time. He seemed incredulous that I would ask him, for his own good I might add, to change the choices he was making. This guy was "live now, pay later and damn you for suggesting otherwise." Even in the era of aids, this patient refused to accept that his choices could create for him a terrible future and cut his life short, or he just did not care.

When I share stories such as this, many people frequently ask me how it makes me feel? Each of these situations is unique and so saying how I feel is difficult. But, in general, freedom does mean that a person can chose to live a certain way as long as they are ok with accepting the consequences of their own actions, and do not attempt to spread the blame for their predicament on others.

Not accepting the responsibility for our choices is a mentality we see everywhere in our society today. But the absolute truth is, the choices we make determine the future we will enjoy or endure. If you chose to use illicit drugs you stand a very good chance of becoming addicted and squandering the gifts and abilities given you. If you choose to go to college, then very clearly your chances of a better life are measurable. Choices matter.

This is also very true of our financial decisions. Spending choices made today impact the ease or hardship of our future. If you bounce several checks and run up a great amount of credit card debt, you will eventually pay the piper. Your life will be different than the person who makes the choice to save, invest and grow wealth. Ask Warren Buffett.

Unfortunately, our elected officials do not seem to know this, or they choose to ignore it for their gain and our children’s loss. Choices made by our government affect our children's future.

It’s hardly debatable that the congressionally mandated home loans to low income people, loans banks would not have made had the various laws and regulations not been passed, caused a serious financial risk for many banks. Many of these “subprime” loans were given to people with bad credit, without checking credit scores, and without documenting income.¹ In 1992, The Department of Housing and Urban Development pressured Freddie Mac and Fannie May to purchase many of these bad loans and to make even more money available for risky loans. In 1995 The Treasury Department created the Community Development Financial Institutions Fund, which gave banks tax dollars to make more of these loans.

The banks, through selling a newly created vehicle called a “derivative,” spread the risk throughout the financial sector. AIG was heavily invested in derivatives.² As the stock market fell secondary to the insecurity investors felt with the housing crisis, bank assets versus liabilities exponentially worsened creating the financial crisis. With investors holding onto their money, the economy ground to a halt.³ Our elected officials compelled institutions to give loans to people who could not afford them and in the end led those institutions to failure. Choices matter.

And what is the government’s response to all these crises? More intervention and more tax dollars spent or promised for the future; more choices to live now and pay later. Through the end of 2008, the United States was about 9 trillion dollars in debt. During his 8-year presidency, George Bush added 4 trillion dollars to the national debt. President Barrack Obama’s current budget and stimulus plans within the next decade will double that figure according to the nonpartisan Congressional Budget Office.⁴ Obama’s additional 9.3 trillion debt choices have consequences.

To add a little perspective, only 7 countries in 2003 had total economic output greater than 1 trillion dollars. Our debt is at a minimum, 7x more than the entire economic output of every country in the world except the top 7. Many economists believe we are already on a path toward bankruptcy that cannot be turned back.

Choices matter. Leaders in both parties have absolutely failed us. Our politicians have chosen to sacrifice our future for the present. The health of this country has been spoiled by the high risk spending practices of its elected officials. Unless we act almost immediately, the consequences of these choices will destroy us.

Mark

¹Stan Liebowitz, “The Real Scandal,” New York Post, Feb. 5, 2008

²Lynnley Browning, “AIG’s House of Cards,” Portfolio.com Sept. 28, 2008

³Mark Levin, Liberty and Tyranny, Simon and Schuster, New York: 2009

⁴ http://www.washingtonpost.com/wp-dyn/content/article/2009/03/20/AR2009032001820.html?

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Stop Terrorist Recruitment – Build Economic Partnerships

On the other side of the equation are, of course, the moderate Arabic states. Many people argue that following our assistance to the Afghans fighting the Soviet Union, our support for the Albanian Muslims against the Christian Serbs, the assistance the US has given the Palestinians and our feeding thousands of Muslims in Somalia, there is no action Americans can take to garner support on the Arab Street. While I admit the reactions from Islamic terrorists do not seem justified in light of our assistance to Muslims in history, I disagree with the conclusion that we thus should not try. There are a number of actions we can take in an effort to prevent the recruitment of terrorists and to assist in the advancement of freedom in the region.

Our government must act to assist the leaders of moderate Islamic states to stay in power. The economic success of countries like Jordan and Kuwait impact the quality of life and employment rates of their citizenry. The single industry economy of a petroleum state does not produce significant work force opportunities. In fact mineral based economies’ GDP grows at rates less than non-mineral based economies. These countries must develop product and service economies, which branch out from the oil industry and produce jobs and wealth that in every other society has led to a birth of freedom. Jobs and productive lives are a significant part of preventing terrorist recruitment and ultimately dissatisfaction with moderate Islamic leaders. Anyone who studies the seeds of terrorism in the Middle East is confronted with the stark fact that most terrorists come from the ranks of the unemployed. In some terrorist groups, 80% of their members are unemployed.¹ Those countries with severely elevated unemployment rates produce a higher number of terrorists, much the same way inner cities with significantly high unemployment rates have increased recruitment to gangs.

The United States missed an opportunity to assist an Arabic government expansion in just such an area with the prevention of the Dubai ports deal. In February 2006, Dubai Ports World, DPW, a company based in the United Arab Emerates, purchased a British company managing six US Port Operations. A foreign government already managed these ports.2 Our business dealings with Dubai have been amazingly fruitful in the past, including their recent bail out of a major US Bank.³ Despite President Bush’s arguments about the political ramifications of the deal, republicans and democrats in congress forced DPW to sell its US Operations to a US owned company.⁴ The response on the Arab Business Street was nearly unanimous. "This can only make the already-damaged image worse," said Youssef M. Ibrahim, managing director of Dubai-based Strategic Energy Investment Group. "The problem is, for four or five years, we haven't found a way to repair that damaged image."⁵

While it is imperative that the US pursue the terrorists and bring them to justice, it is equally imperative we stop the recruitment of terrorists. Increasing our business partnerships will add to our positive influence in the lives of everyday moderate and conservative Muslim peoples in moderate Islamic states. Continued confrontation and distrust will lead to more terrorists who will threaten our safety.

-Mark Green MD

¹Taymur, Samih, A Conceptual Map For Understanding The Terrorist Recruitment Process: Observation and Analysis of DHKP/C, PKK and Turkish Hezbollah Terrorist Organizations, Dissertation Prepared for the Degree of Doctor of Philosophy, University of North Texas, August 2007. Pg. 79

² Weisman, Jonathan and Graham, Bradley, Dubai Firm to Sell US Port Operations; Move to End Three-Week Dispute Comes After GOP Lawmakers, Defying Bush, Vowed to Kill Deal, Washington Post, March 10, 2006. http://www.washingtonpost.com/wp-dyn/content/article/2006/03/09/AR2006030901124_pf.html

³ Middle East Bails Out Citi, CNBC.com, November 27, 2007. http://www.cnbc.com/id/21992994/

⁴ Weisman, Jonathan and Graham, Bradley, ibid, Pg 1.

⁵ Weisman, Jonathan and Graham, Bradley, ibid, Pg 1.

The Truth About Islamic Fundamentalists

Perhaps one of the greatest travesties from our war on terror was the knee jerk reaction of many in the media and Academic America after 9-11: “what have we done to them to cause them to hate us so much.” It is a fair question. Unfortunately many people failed to answer the question fairly. The solid truth is we have done little to nothing to warrant the attack and the initiation of this war. We pay them handsomely for their oil. Many have been made billionaires from oil revenues and the disbursement of that money and its use to develop infrastructure and jobs inside the oil-based countries is not our responsibility. We have assisted Arabic nations in their struggles, Albanian Muslims against Christian Serbs, Afghanis against Russian invaders, fed Somali Muslims starving in famine, and even provided aid to Iranians following an earthquake. Our federal aid dollars to countries like Pakistan are staggering. It is ludicrous to even begin to think that we are the cause of their hatred. Yet, there are, after 9-11 and persisting to this day, millions of people who contend we are to blame. Numerous books and magazine articles depict the West as the evil and terrorist attacks as the retaliation of victims. The result has been tragic because it shifts the focus off the real reason why these people attack us. That real reason is a fervent religious ideology that wants to destroy us because we stand in the way of their religious utopia.

The Jihadists in Pakistan and Yemen, and the theocrats in Iran are bent on continuing the fight regardless of what our media and our liberal academics say about America. Radical Islam adheres to the following global vision statement:

Islam is not a normal religion like the other religions in the world, and Muslim nations are not like normal nations. Muslim nations are very special because they have a command from Allah to rule the entire world and to be over every nation in the world. Islam is a revolutionary faith that comes to destroy any government made by man. Islam doesn’t look for a nation to be in better condition than another nation. Islam doesn’t care about land or who owns the land. The goal of Islam is to rule the entire world and submit all of mankind to the faith of Islam. Any nation or power in this world that tries to get in the way of that goal Islam will fight and destroy. In order for Islam to fulfill that goal, Islam can use every power available every way it can be used to bring worldwide revolution. This is jihad.¹

Written in 1970 by Mawlana Abdul Ala Mawdudi, the founder of the Pakistani fundamentalist Islamic movement, this clearly articulates the ultimate goal of the Jihadist Movement.

The goal is evident throughout the Islamic World. Following the bombings in London in 2005, a Palestinian Cleric spoke on Palestinian television saying, we must “annihilate the infidels and the polytheists, your enemies and the enemies of the religion. God count them and kill them to the last one, and don’t leave even one.”² This goal is taught at a very young age. Jordanian textbooks for children in middle school states, “This religion [Islam] will destroy all other religions through the Islamic Jihad Fighters.”³ Simply put, radical Muslims believe that to kill nonbelievers advances Islam’s domination of the world. The ultimate goal is clearly world domination. This is not hyperbole. They speak it from their pulpits, and they broadcast it in the classrooms. Radical Islam seeks world domination. Period. We are and will continue to be one of their primary targets. - Mark Green MD

¹ Mawlana Abdul Ala Mawdudi, The Threat of Theocracy: Islam and World Domination, Breaking Spells, December 9, 2007. Pg. 1. http://breakingspells.wordpress.com/2007/12/09/the-threat-of-theocracy-islam-and-world-domination/

² Palestinian Television Broadcast, July 8, 2005 presented on the DVD Obsession, Chapter 4

³ Jordanian School Book, 1998, presented on the DVD Obsession, Chapter 4

Obama's Panama Canal

At a political function just last week one of the speakers said, “it takes a Carter to make a Reagan.” Well, if that’s the case then we got a Reagan coming.

President Jimmy Carter’s record on foreign affairs is most notably tainted by his decision to return the Panama Canal Zone to Panama. The consequence led to a significant decrease in US influence in the region and certainly contributed to the perception that the US was easily manipulated. The then president of Panama, Omar Torrijos prepared a plan to sabotage the canal should the US not ratify the treaty. General Manuel Noriega confirmed this, as did documents found on him when captured some years after the treaty’s ratification. While conflicts over the ensuing years in Panama, Nicaragua and El Salvador had numerous causes, clearly these threats and President Carter’s response served to weaken the perception of the US in its dealings in Central America.

On Sunday April 5, Barak Obama was awakened with the news that Kim Jung Il, Commander of the 4^th largest standing army in the world and leader of the rouge state of North Korea, had in direct violation of a UN Security Council Resolution, fired a three-stage rocket over Japan. The missile failed to operate as expected, but still managed to travel 1900 miles from its launch site. That is twice the distance of its previous longest rocket launch. And, unless we are willing to write Japan off, it is a big deal for a nation who professes to have nuclear weapons.

Our president did make some very strongly worded comments. “Rules must be binding. Violations must be punished.” He also called the act a “provocation that can not go unanswered.” Then within a few hours of the launch, he made a major speech in Prague stating the United States will lead the world to become nuclear free.

Obama’s promise to give up our nuclear supremacy only hours after North Korea launched a missile designed to reach the US sends a very clear message to people who would continue to pose a major threat to the US and our allies. That message is weakness. It is not a little known secret that Iranian scientists and political leaders were present at the launch. While many speculate that Kim Jung Il’s launch was to gain bartering chips in negotiations with the West, the presence of the Iranians make it more plausible that this was a sales demonstration. And our president follows his denunciation of this missile launch with a speech about getting rid of our nuclear weapons? Sounds like Jimmy Carter to me.

And what was Iran’s response to this? The Iranian Foreign Ministry spokesman Hassan Qashqavi announced the following day that the US should dismantle all its nuclear weapons and other weapons of mass destruction. However he contended that Iran had a right to continue its quest for nuclear energy: this from the nation with the world’s 4^th highest production of oil.

Whether Obama attempts to follow through on his Carter like promise to give up our nuclear arms, just speaking those words after such an historic confrontation is enough to set back any efforts to compel Iran or North Korea to abide by the Security Counsel’s resolutions. It was an irresponsible speech. Giving DVD’s to world leaders who cannot play them due to format issues is bad form. Making a speech about giving up our nuclear edge only hours after Kim Jung Il launches a missile designed to land on US soil shows a lack of insight that is extremely frightening.

While I would love to see the emergence of a Ronald Regan like leader after a one-term presidency for Mr. Obama, I hope it will not be on the tail end of a similar crisis to President Carter’s other major international relations failure; his impotence with regard to the US Hostages taken by Iran in 1979. The next confrontation with Iran has the potential to silence a million souls in a second. President Obama must learn fast. We cannot afford too much more “on the job training.” And even the hope of another Ronald Regan is not worth the possible consequences of a nuclear Iran.