The Ruthless Truth blog

William Cooper exposes the dark side of the United States Government. THIS IS A MUST SEE!(William Cooper was murdered on 5th. Nov 2001) WRITE THE TRUTH ON THE MONEY!! Only write on the light border of all your bills, as not to deface them, subsequently keeping them in circulation. Use their own control and tyranny against them. Allow our founding fathers to speak of freedom once again and the paper will leave your hand carrying true value, knowledge. Write things like, “9/11 was an inside job”, etc. anything to get the message out and inspire people to open their eyes. Do not deface the bills as they will be destroyed.

 

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From: bigkitchen@hotmail.com
To: id01wmima@mail.house.gov
Subject: RE: From the Office of Congressman Walt Minnick
Date: Fri, 11 Sep 2009 16:29:08 -0600
Walt ;
I always look forward to your responses and it seems your voting does reflect my views on most things.  I believe  we have more fish to fry in  handling the issues that plague America these days.
i want to propose that Idaho reps take staunch measures to protect its citizens from this out of control  washington group, That all of our reps and our military openly vow to protect its citizens in constitutional manner as well as our police.
Bonding as patriots to our republican form of government will be critical in the coming years as elite bankers seek more and more control over our blessed  nation.
We need to be our own change Walt, and  i stand behind all of our patriots in service. We simply cant afford Obamas socialist heresy against our nation , and true to the founding fathers I oblige myself to the goal of promotion of restoration of original constitutional values , not relying on others to wage that war for me and placing myself  on the front lines  as the founding fathers did. i will not be a fake patriot that joins after the battle is finished.  
Walt its time to get serious about freedoms.
Sincerely  your patriotic brother
vernon nielsen

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From: ID01WMIMA@mail.house.gov
To: bigkitchen@hotmail.com
Subject: From the Office of Congressman Walt Minnick
Date: Fri, 11 Sep 2009 18:14:19 -0400

September 11, 2009

Mr. Vernon Nielsen

 

Dear Vernon:

Thank you for taking the time to contact me with your thoughts regarding earmarks in the annual appropriations process.  Your views shape my work here for the people of the First Congressional District, and I appreciate hearing from you.

Members of Congress have the ability to direct funding on a limited basis for specific projects during the annual appropriations process.  Some Members of Congress have abused earmarks.  As a result of insufficient public oversight in the appropriations process, some Members of Congress were able to anonymously insert wasteful projects that produced financial gains for themselves or associates, or benefited targeted constituencies by wasting taxpayer dollars.

You will be pleased to know that I was one of six Democrats who voted no against the 111th session of Congress House Rules Package because it failed to ban earmarks, and I refused to participate in the earmarking process.  I plan to continue working with my colleagues on both sides of the aisle to reform or eliminate the earmark process.

I will keep your thoughts and concerns in mind as I have the opportunity to act on future legislation addressing federal earmarks. Again, thank you for taking the time to contact me.  Feel free to visit my website at http://minnick.house.gov for continued updates on my work, and do not hesitate to contact me if I can be of assistance in the future. 

It is an honor to serve you in the U.S. Congress.

Sincerely,

Walt Minnick
Congressman
ID, 1st CD

Please do not reply to this email. Your message will not be received.
If you have further questions, comments, or concerns please click here or contact my office at 202.225.6611.

The Ruthless Truth blog

by Bob Chapman.

Global Research, August 8, 2009

The International Forecaster

 

The starting point for all analysis of the ongoing bailout orgy that is currently being used in crony capitalist fashion to transfer wealth from our middle class to the financial elites and their transnational conglomerates is whether these bailouts are authorized by the US Constitution.  The answer is a resounding NO!  
Nothing in the Constitution could ever be interpreted in any manner that would in any way allow the conversion of our quasi-capitalist republic into a police state, which is the last thing our Founding Fathers had in mind.
How can our government simply hand over fiat money created out of thin air, which in itself totally violates the provisions in our Constitution dealing with the issuance of money, to whoever they deem to be too-big-to-fail?  The very idea of such targeted bailouts violates every precept upon which our nation was founded, and our Constitution in no way allows the bailout of any private person or business entity, especially where this creates special privileges to be given to a chosen few "anointed" entities at the expense of our citizens in general.  Regulation of interstate commerce does not mean doling out crony capitalist bailouts, which amount to nothing short of the implementation of feudalism under the Puppet Master oligarchs of our Shadow Government.  Regulation would mean fining and jailing these criminals and allowing them to fail so better run companies can acquire their assets via liquidation to be supervised by regulators.  You reap what you sow in this nation.  You do not reap profits for yourself and have everyone else pay for your losses.  That is pure poppycock detritus.
But where is our redress?  We have a President who is a usurper pushed into office by the Puppet Masters in another violation of our Constitution that limits the Presidency to natural born citizens, we have a bogus Congress beholden to the Puppet Masters for the filling of their campaign coffers in a political system where elective offices are bought and sold based on wealth instead of ability and integrity, and we have a Kangaroo Court System where the judges know not to bite the hands that appointed them, lest their skeletons be released from their closets or worse.  Our regulators, who are in on almost every scam and public rip-off (i.e. the Madoff debacle), look the other way or issue chump change fines without requiring any accountability.  The only redress left now are forceful public demonstrations, and if the President and Congress still turn a deaf ear, then there is always the Second Amendment, which is the option which we predict will eventually be used to create a change in our government from total corruption back to public service.  Obama wanted "change," and that is what the American people are going to give him, not what he is going to give us.  And let’s also make that perfectly clear to the Illuminati, whose boots Obama daily licks like a slobbering dog.

When the subprime/credit-crunch debacles first unfolded, we took the position that there should absolutely be no bailouts because such things are illegal, unfair, immoral and flagrantly unconstitutional.  You do not mess with private contract rights, or dole out special privileges to a chosen few on a whim, lest you become known as just another Banana Republic. We are a nation of laws and legal precedents.  You don’t throw out hundreds of years of legal precedent by subordinating secured bondholders to unsecured creditors, all with the blessing of our Supreme Kangaroo Court and its nine numbskulls, who are appropriately dressed like Darth Vader, and then expect any other nation in the world to take you seriously.  Our nation has lost any modicum of credibility and integrity, and the only nations who continue to deal with our government are the ones whose governments are even more criminal than ours is and/or who are caught in a "dollar trap."  This fact alone is enough to kill the bond markets.  This total disregard of the law and of legal precedents creates tremendous risk in the minds of foreign investors, and that means higher interest rates, and lower bond values, both public and private.  And never mind the coming hyperinflation! We deserve to have the dollar lose its reserve status and to have our treasuries rated as "junk" bonds based on the actions of our leaders alone, much less the state of our economy.  No contract is sacred anymore.  They just make up the rules as they go along.

When we recommended against bailouts, we initially were referring to the subprime borrowers who lied on their applications and never should have been given mortgages in the first place.  Bailing out failed financial institutions was the farthest thing from our mind because it was simply unthinkable.  Instead, we have seen subprime borrowers given token help and watched in horror as the failed Illuminist financial institutions were given the key to Goldman Sachs South and its Treasury Department.  We watched slack-jawed as the United States of America became the "Crony Capitalist Bailout Nation."  If anyone is going to be bailed out, it should be the taxpayers and not the elitist transnational corporations and financial institutions who park their foreign profits offshore and don’t pay any taxes on those profits!  COME ON!!!

But the bailouts of "anointed" Illuminist companies have served one purpose very well.  They have provided us with the smoking gun that proves the existence of the Illuminist agenda which we discuss in every issue of the IF.  What do we mean by that? As Joan Rivers would say: "Let’s talk."

Let us first say that the only sensible solution to all the ongoing debacles, other than an immediate purging of the economy which is what we recommended because it would minimize the pain of financial excess and maximize the speed of recovery, would have been to correct the defaults that were causing the various real estate and other credit derivatives to lose value.  The defaults could have been corrected by making the loans current or even by paying them off altogether.  
The math is totally obvious.  Anyone with a high school diploma, a calculator and Internet access could have figured it out.  Yet apparently the people with 1600 combined SAT scores, Ivy League diplomas and many years of Wall Street experience apparently could not figure this out. Do you really believe that?  If so, you are incredibly naive.  You probably also believe that the psychopathic leverage, moronic lending standards and outlandish ratings on bonds and derivatives were the product of mistakes, greed and poor judgment.  Again we say:  COME ON!

Y
Yes, the underlings were simply doing as they were told to get their million dollar bonuses even though they knew that what they were doing seemed very imprudent, but the people at the top, from the upper tier of the Illuminist cabal, knew exactly what they were doing.  The top dogs created the framework for the underlings to work in.  That framework was intentionally and fatally flawed by maniacal leverage, rampant fraud and total lack of any meaningful regulation.  Even a minor problem could be magnified into a major issue via excessive leverage.  And any major problem could, by that same excessive leverage, be magnified into a catastrophic financial meltdown that would destroy the US economy, and even the world economy. You have to kill off the old system utterly, so you can install your fascistic police state and one world government in the ensuing chaos, and that is exactly what is happening right under your nose, right before your very eyes.  Does God have to club you over the head from His throne in Heaven to get you to take notice?  Get a freaking clue, America!!!

Now, let’s look at some numbers.  According to mortgage loan servicers handling 64% of all first liens, they were managing $34 million loans totaling $6 trillion dollars of which two thirds were prime loans. That would make the average mortgage somewhere in the area of $175,000.  If we add in the other 36% of first liens, and assuming the same overall average principal for these loans, we would have a total of about 53 million first liens with an average of $175,000 per mortgage.  The TARP money was 700 billion dollars.  That means we could have completely paid off 4 million mortgages, or cut 8 million mortgages in half whose borrowers would then be able to easily refinance with their high newfound equity.  And Realty Trac tells us that from 2005 to 2008, inclusive, about 7.5 million properties had foreclosure notices of default, orders of foreclosure and/or notices of sale served/filed against them.  There is a lot of double counting there because multiple filings could affect the same properties in different years and not all properties go to foreclosure, but it does give us an outside/maximum figure for loans in serious default.  All those mortgages could have been cut in half with the TARP money and saved from foreclosure, and refinanced down to affordable payments.

What would such a bailout have meant for America?  Bear Stearns would still be here, Lehman Brothers would still be with us, AIG and the insurers would have manageable claims and still have decent ratings, all the subprime lenders would be solvent, all the Wall Street legacy investment banks and commercial banks would still be functioning and would not have become penny stocks, municipal bonds would be selling like hot cakes, the Dow might be past 14,000, most people would still have their jobs, pensions would be flush, the real estate market would still be sledging along, and the world economy would still be humping.  And we haven’t even touched the $787 billion of pork from the stimulus plan, or the two trillion dollars that the Fed doled out to both foreign and domestic banks and that is still unaccounted for!  With those funds we could have paid off everyone’s general purpose credit cards (one trillion), cut another 8 million mortgages in half (700 billion), and still had over a trillion left over to take care of the defaulted car loans, student loans, commercial mortgages and future residential mortgage defaults! Even the foreign banks could have been saved! 

Why would this be so?  Because if the defaults were cured, the de-leveraging of the big commercial and investment banks, which were, and still are, leveraged at a rate of about 50 to 1, would not have become necessary, at least not right away.  This need to de-leverage to absorb losses when they occur by banks that are leveraged at 50 to 1 is what makes a trillion dollar problem into a 50 trillion dollar problem, and this is where we are headed when the Derivative Death-Star ignites and/or banks are forced to mark-to-market again.  All this pain could have been avoided by the curing of loan defaults.

Would it have been fair to bail out the liar loans?  Of course not.  This drips of moral hazard.  But would you rather bail out the bankster-gangsters instead?  Is it more fair to do what our government has done for the criminals on Wall Street?  Heaven forbid! And besides, the bailout of the liar loans would have automatically bailed out the bankster-gansters in any case!!!  Do you mean to tell us that the geniuses of corporate America, Wall Street and Goldman Sachs South could not figure this out?  Again we say:  COME ON!!!

But it gets even better.  We are told by our government bean counters that they think it will take about $24 trillion to bail out the so-called too-big-to-fail banks.  So let’s have some fun with this money. In the private sector, we have $13.8 trillion in household debt, $11.1 trillion in business debt, and $17.2 trillion in debts of financial institutions. We could take the $24 trillion and totally pay off all household and business debts.
That means the financial institutions would collect all that money and use it to pay off their debts as well.  The whole system could have been de-leveraged and the derivatives canceled by regulators.  Would we have hyperinflation as a result of all this bailing out?  Of course!  And some deflation as well.  But would you rather go into hyperinflation debt free, or in hock up to your ears?  You’re going to get hyperinflation whether you get bailed, or the banks get bailed.  And if you get bailed, the banks automatically get bailed.  And for those banks that were totally careless, they would get to fail and be absorbed by the thousands of good banks who would jump at the chance. 
Large amounts of pain are being inflicted on you needlessly while the criminal Illuminati and their nefarious bankster-gangsters get bailed out, thus sucking all your blood out like a vampire squid wrapped around the face of humanity, as Goldman Sachs was recently described by Matt Taibbi.  This is why all the efforts to cure defaulted loans have been half-hearted at best, and non-existent at worst.  The Illuminati know that this is the best cure for the sheople, so we most certainly can not have that.  Else, how could they form their Orwellian one world police state of feudality and become lords of the universe over their future serfs?  This whole bailout bonanza for financial criminals is the smoking gun.  This is irrefutable evidence that the leaders of corporate America, Wall Street and Goldman Sachs South are venomous traitors who want to enslave you and put you and your posterity into bondage forever!

The percentage of occupied living units in the US that were owned as opposed to being rented was about 62% in 1960.  All the shenanigans with Fannie and Freddie and the loosening of loan standards so that anyone breathing could have a mortgage has caused that home ownership percentage to fluctuate in an upward trend with the ebbs and flows of various real estate bubbles since that time, with a peak of almost 69% in 2005.  If we were to trend back to 1960′s 62% ownership, some five million owners would have to become renters again.  We see this as inevitable, and it may get much worse as we move into the most disastrous state of the US economy in our nation’s entire history.  With long-term unemployment at over 20%, which could double if the Illuminati have their way with the ridiculous bailouts of bankster-gangsters, and with hyperinflation on its way, we could see the percentage of home ownership easily drop to 55%, or even less.  We also see prices for housing potentially reverting back to the levels that existed at the beginning of the 1990′s, which is before profligate expansion of money and credit by the Fed began in earnest as the totally criminal Clinton Administration got underway in 1993.  That wild-eyed monetary expansion by the Fed has distorted asset values across the board, and has grown worse with time to cover over the destruction of our economy via free trade, globalization, off-shoring, outsourcing and both legal and illegal immigration. 

Foreclosures, coupled with much higher interest rates on account of hyperinflation and elevated risk, could potentially become bad enough to reduce the median house price to 120,000 as it was in 1991, when the real estate market was partly cleansed.  The deflation could get even worse as our government fires up the subprime market for another round of rampant fraud which could extend defaults even beyond 2012.  Then there is the deflation in the aftermath of hyperinflation.  It is just too terrible to even contemplate where this whole thing could go.

In our last issue, we reported that trailing P/E ratios using GAAP principals for calculating earnings were really 761, not the reported 24 or so that was obtained without taking write-downs into account.  With a trailing P/E ratio of 761, the stock markets would have little, if any, value.  Again, it is too ugly to even contemplate.  The next leg down in this bear market is going to be a killer.

The Illuminati are attempting to start back up where they left off when Meredith Whitney cut them off with her exposure of Citigroup’s toxic waste, but this time it is the taxpayers who are at risk on account of continuing government bailouts of so-called too-big-to-fail legacy banks. To accomplish this recommencement of the subprime and other derivative fraud, they have their losses held at bay with bogus mark-to-model bond and derivative values while Buck-Busting Ben lends them interest-free money which they are parking with the Fed at interest, investing in treasuries, and/or pouring back into the stock and derivative markets.  This is where all the green shoots are coming from, namely, from money created by printing press prestidigitation out of thin air by Bernanke that is being invested by Illuminist financial institutions instead of being loaned to consumers.  The dollar volume in the stock markets far exceeds the money coming out of money markets, so dollar volume and stock prices are being greatly exaggerated as a result of all this profligate money and credit.  This is yet another reason why the Fed stays silent about what institutions received all the money and credit that it has loaned out.  That would enable canny investors to trace the stock market volume to its real source, being digital dollars provided by the Fed to keep the sucker’s rally going.  This rally mirage will come back to haunt anyone who stays in the stock market, other than owning gold and silver related shares.

Meanwhile, as all this transpires, in yet another parlor trick, Bernanke is exchanging dollars created out of thin air by the Fed for other fiat currencies also created out of thin air by foreign central banks in various currency swap arrangements.  This keeps foreign banks out of US credit markets whenever they need dollars to settle transactions, such as oil purchases and credit default swap settlements.  These swapped dollars are also used by foreign central banks to purchase treasuries in order to support the dollar and US treasury bond values, which of course helps to maintain the value of their own existing dollar-denominated reserve assets in US treasury and agency paper.  These swap arrangements are how the Fed is able to maintain the near zero interest rates in US credit markets which are crucial to Illuminist banking profits.

These swap arrangements are little more than smoke and mirrors economics.  They have to keep swapping, or interest rates in US credit markets will rise, treasury values will plummet, and the Fed will be forced to monetize more treasuries to counteract these trends.  These swaps swell the amount of dollars held by foreigners, which will come back to haunt us later when these foreigners implement big dollar bailouts and create a dollar carry trade.  This flood of dollars back to our shores will be the atmosphere that leads to dollar devaluation.  The repatriation of dollars from foreign central banks alone is more than enough to create hyperinflation, much less all the money and credit sloshing around in our national economy already as our government miscreants deficit-spend us into oblivion.  The swaps are being used to sterilize dollars, delaying the inevitable so they can continue to milk the system as long as possible.

The Illuminati may well pull the plug on the stock and oil markets to chase money into dollars and treasuries to save those markets again, which are the seat of Illuminist power, and to help fund an FDIC bailout of what could be hundreds of billions from hundreds of bank failures that would be tallied up during the upcoming bank holiday where the small fry will once again be culled out so the big bankster-gangsters can eliminate the competition and acquire their accounts and assets for pennies on the dollar.  The bank holiday would be used as the excuse for the PPT to withdraw its support from the stock markets, letting them crash under their own weight by virtue of countless negative fundamentals. Congress is going to grant authority for the issuance of $500 billion in treasuries to fund the FDIC bailouts, and it is the Fed’s hope that the flush of liquidity from the PPT’s crashing of foreign and domestic stock and oil markets into dollars and treasuries will reduce the amount of those FDIC bailout bonds that the Fed will have to monetize.  Precious metals will undoubtedly become beneficiaries of this flushing out as well. This will be the dollar and bond markets’ last hurrah, and will pave the roads leading to devaluation of the dollar, and to the greatest bull market in gold and silver of all time.  The next leg up will make up for all the big profits that have eluded newer investors in precious metals thus far. The best is yet to come.  Buy your tickets now, and make sure that you’re already on the train when it leaves the station!  

Market In Review
The Challenger job cuts rose 31% to 97,373 month-on-month. This is the first rise in job cuts since January.

Can you imagine the federal government is asking Goldman Sachs about its compensation packages and credit derivative instruments? The government will do absolutely nothing, – Goldman controls our government.

Besides supplying foreign currencies via loans to friendly countries called swap facilities, the Fed is also using this front to buy Treasuries. The friendly countries are England, So. Korea, Singapore, Switzerland, Japan, Mexico, New Zealand, Canada, Australia, Denmark, Norway and Sweden.

The reason the Treasury reconfigured its figures on foreign central bank Treasury sales was to boost foreign participation in Treasury auctions. That allowed foreigners to show larger auction purchase numbers to cover up Fed purchases of US Treasuries. These swaps allowed a cover for the continued monetization via Treasury purchases and at the same time make it look like the foreigners were the buyers. This way they do not have to continue to use secret offshore accounts in the Caribbean. The actions could explain why the Japanese tried to smuggle US Treasury bearer bonds from Italy into Switzerland for sale before the dollar tanked. The US is in a box and they cannot get out. They have to print money and issue credit or deflation will take charge.

We are now seeing the result of such policies in the value of the dollar as it plummets downward. Obviously others have caught on to what the Fed is up too. If you throw all this monetization into perspective you have to realize it’s hyperinflationary.

Then there is the $2 trillion budget deficit, which could become much worse if Cap & Trade and Health Reform become law. That could guarantee double digit deficits as far as the eye can see, never mind what fiscal madness could be cooked up over the next 3-1/2 years. How would you feel if you were holding dollar denominated assets? In addition the administration’s failed programs have to make you cringe. Instead of applying the stimulus package quickly most of it will occur next year, which was purely a political decision, which will prove to be a costly one for the overall economy. Put this together with the rampant corruption in wall Street and banking, the insider trading by Goldman Sachs and others aided and abetted by the New York Stock Exchange; tremendous political pressure to disband the Fed and a public that is finally catching on to what is really going on and you have a formula for disaster. We also shouldn’t forget the enablers of the Wall Street-Government crime syndicate, the SEC and CFTC, which cover up all these illegal activities.

Every large dollar holder knows going in that it has been US policy for years to inflate its currency. They should have recognized this as a cost of doing business. This inflation in part allowed US consumers the ability to continue to buy massive amounts of foreign products. That meant that in time the dollar was doomed to fall in value. Eventually dollar holders will lose 2/3’s of their dollar purchasing power via devaluation and default. As a result of these profligate US policies we hear rumors that secret deals have been made with creditors to keep them from dumping their dollar denominated assets. It is finally becoming clear to foreigners that today’s American financial system is built on fraud benefiting a small group of elitists who control Wall Street, banking and our government. Then again foreigners are not without fault. Almost every one of them have manipulated their currencies and secretly and openly subsidized their industries. Thus, there is plenty of blame to go around.

Inflation has continued to recede worldwide as monetization is neutralized by the pull of deflation. We are frequently asked when is inflation going to start moving upward or where is hyperinflation? Be patient it is on the way. Our financial system, after two years of crisis, still is insolvent and will continue to need massive infusions of monetized capital. That will be especially true if the FASB changes their rules back to mark-to-market from mark-to-model. We are looking at budget deficits of over a trillion dollars or more as far as the eye can see and we are looking at continued increasing unemployment. That means continued massive money and credit creation. Eventually that will bring the higher inflation and hyperinflation. As a result of this policy of throwing money at the problem the dollar is paying a price. It was but two months ago that we recommended the sale of the dollar and the assumption of short positions at 89.5 on the USDX. As we write that index is at 77.60. We believe it is headed toward 71.18, its former low by the end of October. We projected all this in mid-May some three months ago. We at that time moved based on fundamentals and in June we found the elitists at the Bilderberg Meeting in Greece decided that the dollar could no longer be defended at then present levels.

America is still a great importer of goods and the increase in the cost of goods purchased is a very strong stimulus for price inflation. That T-shirt from China that once cost $1.00 would rise to $1.50 and soon. The idea for the elitists is to hold the dollar decline at 71.18. At first they’ll be successful, but in time that level will be broken and the dollar will fall to 40 or 50. It could take six months or three years dependent on what transpires. The anecdote is gold as it has been for centuries. Gold is wealth preservation that preserves assets whether we have inflation or deflation.

Some governments will continue to create money and credit, such as the US and England. Some may decide to bite the bullet now, as we believe the eurozone may now be doing. The ECB has dropped M4 from 12.8% to 4.7% over the last two years, which could well be an indication they have decided to enter deflationary depression – we will see.

A lower dollar 15 years ago would have been helpful for exports, but in today’s environment a 71.18 USDX dollar would only add ½ of 1% to GDP.

Few talk about it but chances are excellent that in September and October that the stock market could take a heavy hit, falling quickly and deeply back to 6600 on the Dow. De-leveraging has a piece to go with banks still at 40 or 50 times deposits. Eight to ten times is normal. This recent bear market rally is very similar to the 1930 rally, which ended percentage-wise just about where we are presently. Unemployment is rising and that means earnings cannot maintain. Who will they sell too? Get out your parachutes; it is time to jump.

On Thursday, there was a rumor on Wall Street repeated by CNBC that the Labor Department would adjust unemployment from January thru July by 500,000 to 1 million additional lost jobs. This wouldn’t be surprising considering Washington lies about everything. If this is true the market will be seriously affected.

Goldman Sachs made $100 million in trading revenue, a company record 46 separate days in the second quarter. You can only achieve this on inside information. In the second quarter they only had two losing trading days. As a former trader for 25 years and official member of the Los Angeles Traders, I find that totally impossible without inside information. They made $50 million a day. These people are criminals, especially for what they have done to the gold and silver markets.

Commercial paper expanded last week up $10.7 billion to $1,076 trillion. Asset backed paper fell $3 billion after being up $900 million the prior week, to a total of $434.8. Unsecured financial issuance fell $400 million after falling $26.6 billion the previous week.

CEO Index, the only one of its kind, fell to 63 in July. The overall confidence was 75.7 in May. 88.8% rated current conditions as bad, up from 86.3% in June and 81.6% in May.

The employment confidence index fell 25% with 57% of CEO’s expecting a continued decrease in employment in the next quarter. More than 95% rated the rate of current employment environment as bad, the highest level for 2009. 0.4% thought they were good.

Thirty-nine percent expect capital spending to drop and the consensus was we are treading water. They thought the government is only delaying the inevitable. 33% believe the worst is yet to come. They think the President’s healthcare reform if approved would have a devastating effect on the economy. Cap & trade if passed would be equally devastating.

Rumors reach us that a major investment house will put out a call to get its clients out of the ETFs due to anticipated accounting issues. Could it be that GLD and SLV will be exposed as Enron-type frauds?

The continuing saga of Pat Kiley

In the ongoing saga of Pat Kiley we do not know if any money will be rescued, but we figure about $190 to $200 million disappeared. As you know we heard rumors that large amounts of cash were dispersed worldwide to Zurich, Scandinavia, Greece, London and Panama. We hope the FBI is about to move on this unfortunate scandal.

The number of U.S. workers filing new claims for state jobless benefits fell last week, providing another glimmer of hope that the economy may be on the road to recovery.

Initial claims for jobless benefits fell by 38,000 to 550,000 on a seasonally adjusted basis in the week ended Aug. 1, the Labor Department said in its weekly report Thursday. The four-week average of new claims, which aims to smooth volatility in the data, fell by 4,750 to 555,250, the lowest level since Jan. 24.

The tally of continuing claims — those drawn by workers for more than one week — rose by 69,000 during the week ended July 25 to 6,310,000, the highest level since July 4.

For months, issuers have raised credit card rates and fees at a dizzying pace. Now, a growing number are starting to tack on new card fees for inactivity or purchases made outside the U.S.

In June, Fifth Third Bank began charging a $19 fee if credit card borrowers have no account activity in 12 months. Discover now levies a 2% fee on purchases made outside the U.S., and Chase has introduced a $30 annual fee on its popular Freedom credit card.

Citigroup, meanwhile, has rolled out a policy where certain credit card borrowers who pay late are subject to a "reinstatement fee" to be able to redeem accumulated points for rewards. This fee is currently $0. But it won’t stay that way, predicts Robert Hammer, who consults with the industry, if Citigroup finds cardholders aren’t objecting to the policy. Citigroup spokesman Samuel Wang says, "We currently have no plans to raise it."

The fees represent issuers’ latest attempt to mitigate the effects of a credit card law passed in May, which restricts rate increases and marketing to college students. Analysts say that because most provisions don’t take effect until February 2010, issuers are finding ways now to bolster their income despite consumers’ precarious financial situations.

Issuers are "hoping to slip in fees where they’re least likely to be noticed," says Adam Jusko, founder of IndexCreditCards.com, a card comparison site.

Mortgage rates in the U.S. fell for the first time in three weeks, boosting the potential for further stabilization in the housing market.

The average 30-year rate dropped to 5.22 percent from 5.25 percent, mortgage buyer Freddie Mac of McLean, Virginia, said today in a statement. The 15-year rate averaged 4.63 percent for the week ending today.

Lower rates may increase demand for homes in the fourth year of the housing recession. New and existing-home sales rose in June as falling prices and a government tax credit lured buyers. The S&P/Case-Shiller home price index rose 0.5 percent in May from the prior month, the first gain since July 2006.

“If you’re a homebuyer and you’re employed, you can’t complain,” said Donald Rissmiller, chief economist at New York- based Strategas Research Partners. “Policy makers have to consider this a success.”

Federal Reserve Chairman Ben S. Bernanke is trying to lower loan costs with a program to purchase securities backed by mortgages. The central bank’s purchases brought down yields on government debt and mortgage-backed bonds issued by Fannie Mae, Freddie Mac and Ginnie Mae, allowing lenders to reduce rates on new loans and still sell the securities at a profit.

The Federal Reserve’s $1.25 trillion plan for buying mortgage-backed securities helped drive rates to a record low 4.78 percent twice in April. Falling rates helped boost refinancing and purchase applications for home loans.

Rates started climbing in May along with Treasury yields on investor concern that higher government debt would fuel inflation. The 10-year Treasury note rose to 3.75 percent today from 3.61 percent last week.

The pace of U.S. job losses slowed more than forecast last month and the unemployment rate dropped for the first time since April 2008, the clearest signs yet that the worst recession since the Great Depression is easing.

Payrolls fell by 247,000, after a 443,000 loss in June, the Labor Department said today in Washington. The jobless rate dropped to 9.4 percent from 9.5 percent.

Fannie Mae plans to tap $11 billion in new government aid after posting another massive quarterly loss as the taxpayer bill from the housing market bust keeps growing.

The mounting price tag for the rescue of Fannie and its goverment-sponsored sibling, Freddie Mac, is surpassed only by insurer American International Group Inc., which has received $182.5 billion in financial support from the government so far.

Fannie Mae’s new request for $10.7 billion from the Treasury Department will bring the total for Fannie and Freddie to nearly $96 billion. Freddie is expected to report its quarterly results on Friday.

The government has pledged up to $400 billion in aid for the two companies, which play a vital role in the mortgage market by purchasing loans from banks and selling them to investors. They have been under government control since last September, when their near-collapse helped set off the financial crisis.

Together, Washington-based Fannie and McLean, Va.-based Freddie own or guarantee almost 31 million home loans worth about $5.4 trillion. That’s about half of all U.S home mortgages.

With assets of that size, "it’s hard for their problems to be small," said Karen Shaw Petrou, managing partner at Federal Financial Analytics, a consulting firm that advises financial institutions.

Fannie Mae posted a second-quarter loss of $15.2 billion, or $2.67 per share, including $411 million in dividend payouts. That compares with a loss of $2.6 billion, or $2.54 per share, in the year-ago period.

"We are dependent on the continued support of Treasury in order to continue operating our business," Fannie Mae said in a Securities and Exchange Commission filing late Thursday.

The results were driven by $18.8 billion in credit losses due to declining housing market conditions, made worse by rising unemployment. Nearly 4 percent of the loans Fannie Mae owns or guarantees were delinquent as of June 30, up from 1.4 percent a year earlier.

The two companies lowered their standards for borrowers during the real estate boom and are reeling from the bust. High-risk loans, now defaulting at a record pace, have come back to haunt the companies. Worse still, the recession is causing formerly reliable homeowners with good credit to default.

The Obama administration is expected to unveil its plans for Fannie and Freddie early next year. Options being considered include keeping the companies private, winding down their operations, merging them into a federal agency or separating out their bad mortgage assets into a new company backed by the government.

Meanwhile, the head of the federal agency that regulates Fannie and Freddie Mac, James Lockhart, is stepping down at the end of the month. Edward DeMarco, chief operating officer of the Federal Housing Finance Agency, was named acting director on Thursday.

DeMarco, 49, has worked at the agency since October 2006. Before that, he worked at the Social Security Administration and the Treasury Department.

Joseph Stiglitz and Linda J. Bilmes  —  7/07/2009

Last week the U.S. "stood down" in Iraq, finalizing the pullout of 140,000 troops from Iraqi cities and towns — the first step on the long path home. After more than six years, most Americans are war-weary, even though a smaller percentage of us have been involved in the actual fighting than in any major conflict in U.S. history.

But not so fast. The conflict that began in 2003 is far from over for us, and the next chapter — confronting a Taliban that reasserted itself in Afghanistan while the U.S. was sidetracked in Iraq — will be expensive and bloody. The death toll for U.S. troops in Iraq and Afghanistan reached 5,000 in June. An additional 80,000 Americans have been wounded or injured since the war in Iraq began. More than 300,000 of our troops have required medical treatment, and Army statistics show that more than 17 percent of our returning soldiers suffer from post-traumatic stress disorder.

Meanwhile, in Iraq, even though most of the population has long told pollsters they can’t wait for U.S. forces to leave, U.S. officials have said we are likely to station 50,000 troops at military bases in the country for the foreseeable future. This is because the situation in Iraq is highly precarious.

Moreover, the U.S. barely has begun to face the enormous financial bill for the war. By our accounting, the U.S. has already spent $1 trillion on operations and related defense spending, with more to come — and it will cost perhaps $2 trillion more to repay the war debt, replenish military equipment and provide care and treatment for U.S. veterans back home. Many of the wounded will require indefinite care for brain and spinal injuries. Disability payments are ramping up and will grow higher for decades. The stress of extended, multiple tours to Iraq means that a whole generation of U.S. military men and women may now be suffering from long-term mental health issues. The suicide rate in the Army is at its highest level since record-keeping began.

This wartime spending undoubtedly has been a major contributor to our present economic collapse. The U.S. has waged an expensive war as if it required little or no economic sacrifice, funding the conflict by massive borrowing. As we’ve observed in the past, you can’t spend $3 trillion on a reckless foreign war and not feel the pain at home.

Burned by the difficulties in Iraq, our political leaders have no illusions about the length and difficulty of the challenge facing us in Afghanistan. But in other respects we seem set to repeat the same mistakes that we made in Iraq. The president has just signed yet another "emergency" supplemental appropriations measure ($80 billion) to fund continuing operations in Iraq and expansion into Afghanistan. This means that for the 30th time since 2001, war spending has been rushed through the budget process without serious scrutiny.

Obstacles continue to beset returning veterans too. Despite an increase in the Department of Veterans Affairs budget, the backlog of disability claims has reached its highest level.

Early this year, President Barack Obama committed 20,000 troops to a "surge" in Afghanistan. That, combined with a large, ongoing presence in Iraq and continued reliance on private contractors for virtually every aspect of military support, remains a recipe for staggering out-of-control expenditures. Surely we can draw some lessons from the Iraq debacle and set aside money to care for our veterans, crack down on fraud and profiteering, and account for the true costs of the war in the budget so the American taxpayer can see what we are paying for.

Linda J. Bilmes of Harvard University is a former assistant secretary of Commerce. Joseph Stiglitz of Columbia University is a winner of the Nobel Prize in economics and a former chairman of the Council of Economic Advisors. They are the co-authors of "The Three Trillion Dollar War: The True Cost of the Iraq Conflict."

Former congressman William J. Jefferson was convicted of corruption charges Wednesday in a case made famous by the $90,000 in bribe money stuffed into his freezer and a legal battle over the raid of his Washington office that reached the highest levels of the U.S. government.

Federal jurors found the Louisiana Democrat guilty of using his congressional office as a criminal enterprise to enrich himself, soliciting and accepting hundreds of thousands of dollars in bribes to support his business ventures in Africa. The eight-woman, four-man jury convicted Jefferson of 11 of 16 counts that included solicitation of bribery, racketeering and money laundering.

Bloomberg reports the reason for RDN’s better earnings: Radian’s results improved as other mortgage insurers, pressured by higher default rates, reported losses. The insurers pay lenders when homeowners default and when foreclosure doesn’t recoup costs. Radian has rescinded, or rejected, a growing number of claims on grounds that false information voids coverage.

“Our recent denial and recisions are much higher than historical levels, reflecting our loss management efforts to review more claims and the significant concentration of loans in our delinquency portfolio” originated in 2006, 2007 and early 2008, Chief Financial Officer Robert Quint said today in a conference call. Radian’s provision for mortgage insurance losses was $142.8 million, compared with $449.2 million in the same period last year. The insurer paid $167.7 million in mortgage insurance claims in the second quarter, compared with $208.8 million in the year-earlier period. The insurer said it expects to pay between $275 million to $300 million in first- and second-lien claims in the third quarter.

The Obama administration launched a broad government effort this week to overhaul mortgage giants Fannie Mae and Freddie Mac and is considering splitting the companies and putting their troubled assets in a new federally backed corporation, administration officials said.

The move would dispense with one of the biggest burdens created by the financial crisis: the hundreds of billions of dollars in money-losing home loans owned by District-based Fannie Mae and Freddie Mac.

The government has already pledged nearly $2 trillion, including $85 billion in direct aid, to keep the mortgage market working through the firms.

Goldman Sachs Group Inc. made more than $100 million in trading revenue on a record 46 separate days during the second quarter, or 71 percent of the time, breaking the previous high of 34 days in the prior three months.

Trading losses occurred on two days during April, May and June, down from eight in the first quarter, the New York-based bank said today in a filing with the U.S. Securities and Exchange Commission. The company made at least $50 million on 58 of the 65 trading days in the period, or 89 percent of the time.

Only five percent say the president’s policies have cut the deficit, and 10% say they have had no impact. Thirteen percent(13%) are not sure.

The Institute for Supply Management’s index of non- manufacturing businesses, which make up almost 90 percent of the economy, fell to 46.4 from 47 in June, according to the Tempe, Arizona-based group. Fifty is the dividing line between expansion and contraction. ADP Employer Services said companies cut staff last month more than economists anticipated.

The U.S. Securities and Exchange Commission’s move to ban so-called flash orders may help NYSE Euronext take back market share of U.S. stock trading at the expense of three-year-old rival Direct Edge Holdings LLC.

Senator Charles Schumer said yesterday the SEC will seek to stop the practice in which some brokers get a split-second advantage in viewing requests to buy and sell stock, after discussing the issue with Chairman Mary Schapiro. NYSE Euronext, the only one of the top four U.S. exchanges that doesn’t use flash orders, has seen its portion of the nation’s share trading slip to 30.3 percent in the second quarter from 35.5 percent a year earlier, while Direct Edge’s doubled since November.

“
The big existing exchanges are going to be benefiting because the pendulum is swinging back in that direction in the area of transparency,” said Thomas Caldwell, who manages about $1 billion, including NYSE shares, as chairman of Caldwell Financial Ltd. and president of Urbana Corp. in Toronto.

Flash orders grew to 2.4 percent of the shares traded in the U.S. in June, three years after the practice began as a way of increasing the odds an order would be filled, according to data compiled by New York brokerage Rosenblatt Securities Inc. Schumer said the delay in routing transactions to other exchanges makes it easier for brokerages with the fastest computers to get an edge calculating demand for a stock.

MBA Mortgage Applications up 4.4% last week.

The pace of layoffs may be easing. Private-sector jobs in the U.S. fell 371,000 in July, according to a national employment report published Wednesday by payroll giant Automatic Data Processing Inc. (ADP) and consultancy Macroeconomic Advisers.

The expected loss compares with the 350,000 drop in the ADP survey projected by economists in a Dow Jones Newswires survey. ADP revised its June job loss figure to 463,000, down from 473,000 first reported.

The ADP survey tallies only private-sector jobs, while the Bureau of Labor Statistics’ non-farm payroll data, to be released Friday, includes government workers. Economists surveyed by Dow Jones Newswires expect the Bureau of Labor Statistics will report July job cuts totaling only 275,000, about half the loss of 467,000 reported in June. The July unemployment rate is projected to rise to 9.7% from 9.5% in June.

Economists think that economic output may have stopped contracting in the second quarter, but any turnaround in the labor markets is still months away.

Joel Prakken, chairman of Macroeconomic Advisers, noted that the decline was the smallest since October 2008, but added, "Despite recent indications that overall economic activity is stabilizing, employment, which usually trails overall economic activity, is likely to decline for at least several more months, albeit at a diminishing rate."

The latest ADP report showed large businesses with 500 employees or more shed 74,000 jobs and medium-size businesses lost 159,000 workers last month. Small businesses that employ fewer than 50 workers cut 138,000 jobs in July.

Chris Varvares, president of Macroeconomic, noted that job losses are easing in major industries. Service-sector jobs fell 202,000 in July, less than the 225,000 average in the previous three months. Factory employment dropped 99,000 in July, compared with the 150,000 average in the prior three months.

Varvares said payrolls are unlikely to turn up until early 2010. Macroeconomic forecasts the unemployment rate to peak at 9.9% in the fourth quarter of 2009, with the rate possibly rising above 10% for one month or two.

ADP, of Roseland, N.J., says it processes payments of one in six U.S. workers, while Macroeconomic Advisers, based in St. Louis, is an economic consulting firm.
In another Wednesday job report, TrimTabs Investment Research estimated that job losses accelerated last month, with 488,000 workers laid off in July, worse than the ADP estimate. TrimTabs uses daily income-tax withholdings to the U.S. Treasury to estimate changes in employment.

"While Wall Street is convinced the recession is over, the economy continues to shed jobs at an alarming rate,"said Charles Biderman, chief executive of TrimTabs.
Also on Wednesday, outplacement firm Challenger Gray & Christmas said that the number of layoffs announced by U.S. companies jumped 31% in July to 97,373. Challenger said that so far this year, employers have announced 994,048 job cuts, 72% more than the 579,260 announced in the first seven months of 2008.

Saudi Prince Bandar bin Sultan, the kingdom’s former ambassador to the United States, is reportedly under house arrest over a conspiracy against the monarch.

Saad al-Faqih, head of the opposition group Islamic Reform Movement, told Arab-language TV al-Alam that Prince Bandar has been disappeared and the media has published no word from the ex-diplomat’s whereabouts since nearly three months ago.

According to al-Faqih, the prince first disappeared in Britain but he returned to the kingdom shortly afterwards.

He added that after Saudi officials discovered that he had provoked 200 agents working for the Saudi security service to stage a coup against King Abdullah, he was put under house arrest.

Al-Faqih said people close to the king had disclosed Bandar’s plots and foiled them. ]

He said Saudi sources believe that intelligence provided by some Arab countries help the Saudi monarch foil Prince Bandar’s conspiracy.

Power struggle between members of the Saudi royal family has been common as power is shared among some 200 princes out of the estimated 7000 family members.

Known as Bandar Bush because of his close relations with former US President George W Bush, the prince is son of Crown Prince Sultan bin Abdul Aziz.

75% of Americans and at least 276 Congress members and 19 Senators want to audit the Fed, but the Fed is fighting tooth and nail to keep everything hidden.

Most people assume that the Fed wants to keep secret the list of banks which received bailout money. You know, something along the lines of "we gave Goldman Sachs $100 billion".

But what the Fed is really struggling to keep hidden is the fact that the entire financial system is based on massive manipulation and fraud by the Fed and its primary dealers.

Specifically, the Fed is desperately trying to hide that many trillions of the government’s bailouts have gone to inflating the stock market, buying up the U.S. government’s own treasuries, and gaming the currency and gold markets.

Of course, when the New York Federal Reserve’s "primary dealers" (the dealers through which the Fed carries out its open market operations in general, and its PPT, ESF, and other schemes through) get the huge sums of cash from the Fed, they place bets based on inside knowledge of where the money flows are going (they also, supposedly, skim off part of the cash, but that’s for another essay).

In other words, the Fed’s primary dealers engage in insider trading and front-running on a scale which would make your normal white collar felons look like a silver nanoparticle.

Finally, the Fed is not the only central bank engaging in manipulation. An audit would show how the Fed is playing footsie with other private central banks in an international con game.

Don’t believe me? Show me the books and prove me wrong.

The California dream has faded since the 1970s for many in the Golden State, according to a new Field Poll.

Just 41 percent of registered voters agree the state is “one of the best places to live,’’ a sharp drop from the 76 percent who thought so 30 years ago when Field first asked that question.

The survey, released yesterday, found that Republicans were the most likely to have lost that lovin’ feeling about their state.

Just 30 percent of GOP respondents said that California remained a great place to live, compared with 80 percent in 1977.

The decades after that year brought dramatic growth in the state’s population, from 22.8 million in 1978 to the latest estimate of 38.3 million people, a 68 percent increase.

The Field Poll report compared Californians’ attitudes on a range of social and lifestyle issues over the last 30 years.

Findings were based on Field Polls taken from 1975 to 1978 and from 2006 to 2009.

Among the biggest changes found in attitude was the increasing support for gay marriage, now favored by 49 percent of Californians and opposed by 44 percent.

In 1977, voters were opposed by a 62-to-31 ratio.

President Barack Obama’s approval rating is falling on concern unemployment is rising and the budget deficit will grow, a Quinnipiac University poll shows.

Exactly half of the registered voters surveyed from July 27 to Aug. 3 by Quinnipiac said they approve of the job Obama is doing, compared with 42 percent who disapprove. That’s down from 57 percent approval and 33 percent disapproval in a poll taken in late June, according to results released today.

The poll found that voters disapprove of the way Obama is handling the economy by 49 percent to 45 percent. On his effort to overhaul of the health-care system, 52 percent disapprove of his handling of the issue while 39 percent approve.

Only foreign policy offered a bright spot: 52 percent of poll respondents approved of his job on this front, compared with 38 percent who disapproved.

Quinnipiac took the poll in the middle of a controversy over Obama’s remarks about the arrest of Harvard University scholar Henry Louis Gates Jr. Gates, who is black, was arrested on a disorderly conduct charge after a confrontation at his home in Cambridge, Massachusetts, with a white police officer.

Obama, asked about the incident during a July 22 news conference, said police “acted stupidly” in making the arrest. In the poll, voters by 49 percent to 33 percent said Obama acted “stupidly” when he waded into the matter. Even so, 55 percent said they approved of the way Obama is handling race relations.

The poll surveyed 2,409 registered voters nationwide and has a margin of error of plus or minus 2 percentage points.

Maurice “Hank’’ Greenberg, who led American International Group Inc. for 38 years until his ouster amid state and federal accounting probes in 2005, will pay $15 million to settle US claims he manipulated the insurer’s earnings.

Greenberg, 84, and former AIG chief financial officer Howard Smith “directed several different accounting transactions to materially affect AIG’s reported financial results,’’ the Securities and Exchange Commission said in a lawsuit filed yesterday in federal court in Manhattan. Smith will pay $1.5 million to resolve the suit. [Another giant fraud, no jail time, and a penalty that is ridiculously low. As you know Greenberg is a guiding light of the Council on Foreign Relations, and an Illuminist. This is how the system works.]

Transaction prices of commercial property sold by major institutional investors fell by 18 percent in the second quarter of 2009, according to an index developed and published by the MIT Center for Real Estate (MIT/CRE).

The 18.1 percent drop in the transactions-based index (TBI) for the second quarter is by far the biggest quarterly decline in the gauge’s 25-year history. (The second-biggest down quarter was the fourth quarter of last year, at -10.6 percent.) This was the fifth consecutive quarterly drop and the seventh in the past eight quarters. The index is now down 22 percent year-to-date, down 32 percent from where it was a year ago and down 39 percent from its mid-2007 peak — far greater in nominal terms than the 27 percent drop the index experienced in the previous major commercial property downturn in the late 1980s and early 1990s (the two drops are now tied in real terms, net of inflation, at 41 percent), and substantially greater than the current drop in national housing prices (about 30 percent).

"The big news this quarter is not just the magnitude of the drop, but the fact that transaction volume actually increased in the presence of this decline, the first volume increase since last summer," said Professor David Geltner, director of research at MIT/CRE. "Perhaps most important, the supply-side index of the prices property owners are willing to sell at plunged a record 18.5 percent, suggesting a degree of ‘capitulation’ which may help to bring market prices finally to a bottom; this is the kind of thing that could begin to rebuild liquidity in the market."

MIT/CRE publishes not only the price index based on closed deals, but also compiles indices that separately gauge movements on the demand side and the supply side of the market that it tracks. The demand-side index tracks the changes in prices that potential buyers are willing to pay (sometimes called a "constant-liquidity" index of the market, because it tracks how much prices would have to change to keep a constant ability to sell as many properties at the same rate of trading volume). That index has now fallen steadily for all of the past eight quarters. It fell again in the second quarter, almost in lock-step with the supply-side index, bringing the demand index now to a level 48 percent below its mid-2007 peak.

"As is generally the case, the results posted by our index are corroborated by recent evidence from another commercial property price index whose methodology was developed at the MIT/CRE: the Moody’s/REAL Commercial Property Price Index, produced by Moody’s Investors Service," said MIT/CRE Research Technician Holly Horrigan. "The Moody’s/REAL report released by Moody’s on July 20 indicated that index dropped 16 percent during April and May alone, which by May put it already down 22 percent year-to-date and 35 percent below its 2007 peak," Horrigan noted. The TBI tracks the prices that institutions such as pension funds pay or receive when transacting commercial properties like shopping centers, apartment complexes and office towers. The MIT Center’s TBI is based on prices of National Council of Real Estate Investment Fiduciaries (NCREIF) properties sold each quarter from the property database that underlies the NCREIF Property Index (NPI), and also makes use of the appraisal information for all of the currently 6,000 NCREIF properties. Such an index — national, quarterly, transaction-based and by property type — had not been previously constructed prior to MIT’s development of it in 2006. NCREIF supported development of the index as a useful tool for research and decision-making in the industry.

Monster Worldwide Inc., an online careers and recruiting firm, said its employment index edged down three points in July to 114 from 117 in June. The current month’s reading is 27 percent below the 157 mark seen a year ago.

On Thursday, JP Morgan again saved the stock market after disappointing retail sales data. CBOT sources say JPM bought about 1000 SPUs after the opening collapse. Then JPM bought 1k after noon and continued its SPU buying through the close. They had to have known the unemployment numbers. They must have been passed to them by Treasury or the BLS.

There is no second foreclosure wave coming, says Sam Khater, senior economist, First American CoreLogic. “To say there is a second wave implies the (current) wave has receded,” Khater told me. “I don’t see that the wave has receded.”

If you look at the 90-day rate it has been heading straight up — it has not receded…the foreclosure rate and REO rates have been impacted by government tinkering in the market. He said federal and state efforts have mostly delayed foreclosures, preventing few. The same is true for loan modifications — they fail about half the time.

Obama’s biggest obstacle is the 68% of voters who rate their health coverage as good or excellent.

If Obama believes a 31-year old with no auto or significant business experience can be the czar of GM, who will be appointed health care czar? Perhaps to reward rabid Hollywood support a cast member of “Grey’s Anatomy” can run the US health care system.

A new CNN poll shows: After 6 Months, More View Obama’s Presidency as a ‘Failure’ than Bush’s.

The biggest U.S. television networks are posting declines of 15 percent or more in advertising commitments for the prime-time season starting next month, based on results at CBS and NBC.

So-called upfront sales at General Electric Co.’s NBC will fall 15 percent to 20 percent, a person with knowledge of the matter said yesterday. Sales were $1.9 billion last year, a person familiar said then. CBS Corp. will collect about $2.1 billion, down from an estimated $2.5 billion, according to Michael Morris, an analyst at UBS AG.

“We’ve been the strongest player in these very protracted negotiations,” CBS Chief Executive Officer Leslie Moonves said on a conference call yesterday. “We’re very pleased with how things have progressed.”

Networks are holding more inventory, betting advertisers will pay a higher price as the economy improves. New York-based CBS, the most-watched network among all viewers, is almost done and will pre-sell about 65 percent of its available ad time, compared with 75 percent to 80 percent last year, Moonves said. NBC will is selling 70 percent of its inventory, down from 80 percent, according to the person.

Small businesses that received $682 million in IOUs from the state say California expects them to pay taxes on the worthless scraps of paper, but refuses to accept its own IOUs to pay debts or taxes. The vendors’ federal class action claims the state is trying to balance its budget on their backs.   Lead plaintiff Nancy Baird filled her contract with California to provide embroidered polo shirts to a youth camp run by the National Guard, but never was paid the $27,000 she was owed. She says California "paid" her with an IOU that two banks refused to accept – yet she had to pay California sales tax on the so-called "sale" of the uniforms.   The class consists mostly of small business owners, many of whom rely on income from government contracts to keep afloat. They say California has used them as "suckers" as it looks for a way to bankroll its operations while avoiding its own financial obligations.  "Instead of seeking funds through proper channels, the State has created a nightmare," the class says. "Many of these businesses will not survive if they are required to wait until October 2009 to have these forced IOUs redeemed by the State."      The class claims the state is violating the Fifth and Fourteenth Amendments. It demands that California be ordered to honor its own IOUs, plus interest. They are represented by William Audet. 

Bank of America announced its intention to extend “quantitative easing” by another 40% from $200 billion to $280 billion. We call that insolvency.

There is a rumor that Goldman Sachs will kick back 10% of profits so Congress won’t investigate them.

On Friday on CNBC Rick Santelli made the comment, “When markets traded freely.”

The Battle Dry Index, which tracks transportation costs on international trade routes fell 135 points or 4.6%, to 1,772 points on Friday for a weekly loss of 175.

Retail sales are off 6%; consumer spending is less than 70% of GDP; personal income is the lowest in years and continues to fall; 24% of homeowners are under the water on their mortgages and U6 unemployment is 20.8%.

July average hourly earnings fell 0.2% and the average weekly hours were 33.1.

Since December 2007 officially 6.7 million jobs have been lost.

Bob Chapman is a frequent contributor to Global Research. Global Research Articles by Bob Chapman

Mises Daily by George Reisman | Posted on 8/6/2009 12:00:00 AM

 

1. The Medical Crisis and the Need for Radical Procapitalist Reform

For decades the cost of medical care has risen relative to prices in general and relative to people’s incomes. Today [1994] a semi-private hospital room typically costs $1,000 to $1,500 per day, exclusive of all medical procedures, such as X-rays, surgery, or even a visit by one’s physician. Basic room charges of $500 per day or more are routinely tripled just by the inclusion of normal hospital pharmacy and supplies charges (the cost of a Tylenol tablet can be as much as $20). And typically the cost of the various medical procedures is commensurate. In such conditions, people who are not exceptionally wealthy, who lack extensive medical insurance, or who fear losing the insurance they do have if they become unemployed, must dread the financial consequences of any serious illness almost as much as the illness itself. At the same time, no end to the rise in medical costs is in sight. Thus it is no wonder that a great clamor has arisen in favor of reform – radical reform – that will put an end to a situation that bears the earmarks of financial lunacy.

Such a reform has been proposed by the Clinton administration. The essence of its plan is to control the rise in medical costs by a combination of controlling the various prices charged by the providers of medical care and the kinds and quantities of medical care that they can provide. In the plainest language, the Clinton administration’s proposed solution to the problem of ever rising medical costs is price controls and rationing. [This applies to all proposals for government-mandated cost controls, including, of course, those of the present, Obama administration. There is simply no way for the government to limit medical costs except by limiting the prices and/or kinds and quantities of medical care provided.]

I will have a great deal to say in criticism of the Clinton administration’s proposal later on. Here I want to stress that I do not believe that the most important or fundamental objective that must be accomplished in connection with the Clinton plan is to explain why it should be rejected. It certainly should be rejected. But the mere rejection of the administration’s proposal will serve only to maintain the status quo. The status quo with respect to medical care does not deserve to be preserved. It does bear the earmarks of financial lunacy. It does call for reform – for radical reform. The question is, what kind of radical reform?

For over a century, virtually all proposals for economic or social reform have been based on the thoroughly mistaken philosophical and theoretical foundations of Marxism, and have aimed at the ultimate achievement of a socialist society, in the belief that socialism represented the most rational and moral system of mankind’s social organization. On the basis of this conviction, individual freedom was progressively restricted and the power of the state progressively enlarged. Individual freedom – laissez faire capitalism – was assumed to be a system of chaos and of the exploitation of the masses by the capitalists. The onslaught of the socialists (who in this country call themselves "liberals") – the step-by-step achievement of their political agenda – encountered virtually no philosophical resistance. Not surprisingly, again and again, the "liberals" defeated their ill-equipped conservative adversaries, who at most could only delay their advance. The victories of the "liberals" were inevitable because it was a battle of men with the seeming vision of a better world that could be achieved by means of intelligent human effort based on a body of ideas (however mistaken those ideas were), against men who, while they valued the relatively free world they saw around them, had no significant philosophical or theoretical knowledge of how to defend it.

In the last few years, some of the most profound and fundamental changes in the political and intellectual history of mankind have taken place. The philosophy of socialism and the economic theory of Marxism have been recognized as a blatant failure almost everywhere, and have been abandoned by tens of millions of former supporters. All over the world, the cry is heard "no more socialism!" One socialist regime after another has recognized the chaos and tyranny of socialism and has become dedicated to the achievement of a capitalist society. Thus, the intellectual base and the driving force of American "liberalism" has largely disintegrated.

Considered against this backdrop, the Clinton administration’s proposal for the government’s takeover of medical care in the United States appears as a ludicrous anachronism. It reads like the work of twentieth-century Rip Van Winkles who have been sleeping since the 1930s and who have not had a chance to read the newspapers. In effect, America’s politicians and intellectuals who support the proposal are still riding a train that more intelligent people the world over have recognized can take them nowhere but to hell and have therefore jumped off.

In contrast, while the philosophy of Marx and Engels is dying, the philosophy of Locke and Jefferson, and Adam Smith, that is, the philosophy of individual freedom and capitalism underlying the American Revolution – the philosophy which, ironically enough, was the original meaning of the word liberalism – has been reborn. It has been reborn first and foremost at the hands of Ayn Rand in political philosophy and of Ludwig von Mises in economic theory, both of whom have enormously strengthened it. This philosophy of individual freedom, of the inviolability of individual rights, of the benevolent functioning of an economic system based on private ownership of the means of production and the profit motive – of capitalism – calls for a radically new political agenda. It calls for a political agenda that progressively rolls back the interference of the state and progressively enlarges the freedom of the individual. This is now what political philosophy and economic theory at their highest levels of development recognize to be the essential means of solving social and economic problems. Movement in this direction – in the direction of individual freedom from government interference – is henceforth to be regarded as the standard of what is to be considered progress in the realm of political action.

It is on the basis of this newly resurgent, radically different political philosophy and economic theory – this philosophy and theory of individual rights and capitalism – that I explain the causes of the present crisis in medical care, criticize the Clinton plan, and present the appropriate solution and how to achieve it.

2. The Right to Medical Care and the Causes of the Medical Crisis

The causes of the present crisis in medical care, namely, its runaway cost, which the Clinton plan is intended to address, can all be subsumed under one essential heading: the government’s violation and/or perversion of the individual’s actual, rational right to medical care.

I use the concept of "rights" in the sense in which Ayn Rand uses it, and in which, at least implicitly, John Locke and the Founding Fathers of the United States used it. (See Ayn Rand’s essay "Man’s Rights," which appears in two of her books: The Virtue of Selfishness and Capitalism: The Unknown Ideal.) That is, not as an arbitrary, out-of-context assertion of claims to things or to obligations to be filled by others, but as pertaining to the actions an individual must take in order to live – as moral principles defining and sanctioning his freedom to take those actions. The only way that the individual’s freedom, and thus his rights, can be violated is by means of the initiation of physical force against him – that is, by the use of guns and clubs against him, in the form of the government’s threat to dispatch the police if he does not obey irrational laws. This is what stops him from taking the actions necessary to serve his life. Rights are a moral injunction to the whole rest of society – including, above all, its government – not to interfere with the individual’s freedom to take the actions that serve his life. They exist on behalf of the individual and are directed against the rest of the world. They are the means of subordinating the whole of society to the requirements of the moral law of each and every individual serving his own life.

It should go without saying that in serving his own life, each and every individual is morally obliged to respect the right of others to be free from any initiation of physical force on his part. This is implicit in the right of each to be free from the initiation of physical force by the whole rest of the world. In exercising his own rights, therefore, the individual is not to violate the essential right of anyone else to be free from the initiation of physical force by him. This means that insofar as any individual’s exercise of his rights entails the cooperation of other people, their cooperation must be obtained voluntarily. An individual has no right to exercise any alleged right that would entail the initiation of physical force against others and thus the violation of their rights. There is no right to violate anyone else’s rights.

The exercise of man’s right to life means simply that he has the right to take whatever actions are necessary to sustain and promote his life or further it in any way. For example, in the simple conditions that prevailed on the American frontier in the nineteenth century, he has the right to clear land, build a cabin, hunt game, grow crops, and so on. In the more complex conditions of life in modern society, in which he is surrounded by other people, insofar as his taking any such actions entails the cooperation of others – notably, the use of their labor or property to serve his life – his proper and necessary means of obtaining their cooperation is to trade for it. For all practical purposes, this means that he obtains the cooperation of others by selling his labor or goods for money and then using the money to buy the labor and goods of others. Buying and selling become an integral part of the exercise of one’s rights in any modern society. Buying is the means whereby one enlists the intelligence and skills and the wealth and property of others in the service of one’s life. Selling is the means whereby one provides others with the benefit of one’s own intelligence and skills and wealth and property in the service of their life and thereby obtains the means of buying. Thus, in the conditions of life in a modern, division-of-labor society, the right to free exchange, the right to the freedom of contract, becomes an essential aspect of the exercise of the right to life. It is at the base of the exercise of the right to life under conditions in which individuals mutually cooperate, to mutual advantage, in promoting their lives. It is at the base of the exercise of the right to life that enjoys the overwhelming advantages of life in a division-of-labor society.

The right to free exchange and the freedom of contract becomes an essential aspect of all rational rights to things. Rights to things exist only in the context of the freedom of exchange and the freedom of contract. To take some examples, an individual has no such thing as a right to a job as such. He has a right only to those jobs voluntarily offered by employers. His right to employment is violated not when he cannot find an employer who is willing to employ him, but when he can or could find such an employer and is prevented from doing so by the initiation of physical force. His right to employment is violated when, for example, an employer who would otherwise choose to employ him is prevented from doing so by the government’s imposition of a racial or sexual quota which compels the employer to hire someone else instead. His right to employment is violated by the government’s minimum-wage laws and prounion legislation, which latter makes possible the imposition of artificially high wages for skilled and semiskilled labor. Every rise in wage rates above the free-market level serves to reduce the quantity of labor demanded below the supply available and thus to prevent people from being employed. The legislation that makes this possible thus represents a violation of the right to employment in the sense of the right to accept employment that employers would be willing voluntarily to offer.

Similarly, no one has the right to such a thing as a house as such. What one has is the right to buy a house, or to buy the things necessary to build it. One’s right to a house is violated not when one cannot afford to buy or build a house, but when one could afford to buy or build a house if one were not forcibly prevented from doing so. The right to housing is violated by such things as zoning laws, arbitrary building codes, minimum-wage and prounion legislation, protective tariffs on the import of construction materials or construction equipment – by any initiation of physical force that artificially increases the cost and price of housing and thereby prevents people from obtaining housing who otherwise could have obtained it from willing providers.

In exactly the same way, the right to medical care does not mean a right to medical care as such, but to the medical care one can buy from willing providers. One’s right to medical care is violated not when there is medical care that one cannot afford to buy, but when there is medical care that one could afford to buy if one were not prevented from doing so by the initiation of physical force. It is violated by medical licensing legislation and by every other form of legislation and regulation that artificially raises the cost of medical care and thereby prevents people from obtaining the medical care they otherwise could have obtained from willing providers. The precise nature of such legislation and regulation we shall see in detail, in due course.

This then is the concept of rights, and specifically of rights to things, that I uphold. One’s rights to things are rights only to things one can obtain in free trade, with the voluntary consent of those who are to provide them. All such rights are predicated upon full respect for the persons and property of others. This is the concept of rights appropriate to rational human beings living in a civilized society. Henceforth, I shall refer to it as the rational concept of rights.

In sharpest contrast, the concept of rights held by the great majority of our contemporaries, especially the great majority of today’s intellectuals, is a concept characteristic of savages, that is, of people who have not grasped the principle of causality and the fact that wealth must be produced, who believe instead that wealth appears as though by magic, and that they have a claim to it by the mere fact of needing it or wishing for it. This concept of rights I shall refer to as the need-based or wish-based concept of rights. It exists in full contradiction of the rational concept of rights and entails the complete violation of all rational rights. It is a concept of rights whose literal meaning is "I want it and therefore I’m entitled to take it."

According to this concept, people do have rights to jobs, houses, and medical care as such, just by virtue of needing or desiring them. Since a job entails the payment of money by the employer to the employee, and typically the provision of the use of part of the employer’s premises to the employee, the notion of a right to a job as such – that is, with or without the employer’s consent – implies an alleged right to take an employer’s money against his will and to occupy his premises against his will, that is, an alleged right to trespass on his property and to rob him. Similarly, since a house, or any other material good, is a product of human labor, the right to a house as such implies a right to compel other people to build one a house, whether they wish to or not. It is tantamount to claiming a right to forced labor on their part. Finally, in exactly the same way, the alleged right to medical care as such implies an alleged right to force others to pay for one’s medical care against their will or to force the providers of medical care, such as doctors and hospitals, to provide it against their will. It thus implies an alleged right to medical care as a right to steal and enslave. All such alleged need-based or wish-based rights are a contradiction of genuine, rational rights, which exist precisely as a moral sanction of the individual’s freedom from such outrages.

I have said that the causes of the present crisis in medical care can all be subsumed under the heading of the government’s violation and/or perversion of the individual’s right to medical care. By this last, I mean its use of the alleged need-based right to medical care rather than the actual, rational right to medical care as the basis of various policies it has adopted over the years. Seen in this light, the origins of the present medical crisis go back all the way to the government’s establishment of various forms of medical licensing as early as the nineteenth century, and the subsequent increase in licensing requirements it has imposed in the course of this century.

The essential nature of medical licensing is forcibly to exclude from the market a more or less sizable number of individuals and organizations who otherwise would be willing providers of medical care. Such legislation violates the right to medical care by depriving the buyers of medical care of the services of these willing providers. It is both a violation of the freedom of competition of those providers and, by the same token, the bestowal of a monopoly privilege on those to whom the government grants licenses. It deprives the buyers of medical care of the benefit of the additional supply of medical care that would be provided by the excluded competitors and forces them to deal only with the government-protected medical monopolists. The inescapable effect of such legislation is to make medical care scarcer and more expensive. The principal victims of such legislation are necessarily those who can least afford any rise in prices, namely, the poor. (I will deal with the essential rationalization offered in favor of medical licensing later.)

Ironically, the main driving force behind medical licensing has always come from within the medical profession itself, many of whose members have sought the monopoly privileges that licensing bestows and thereby the artificial rise in their own incomes that it makes possible. There is nothing that should be surprising in this. It simply means that physicians have often acted in the same mean spirit as carpenters or plumbers who form coercive labor unions, farmers who seek government subsidies, or businessmen who seek protective tariffs. It is an expression of the mentality that underlies most government intervention into the economic system, namely, the mistaken belief that it is possible to serve one’s self-interest by means of the initiation of physical force against others, coupled with a willingness to serve it by such means. Such a policy is irrational and ultimately self-destructive. Indeed, its self-destructiveness is illustrated precisely by the plight of today’s physicians. For what is ironic in the fact that physicians have been the driving force behind medical licensing legislation is that, in effect, they first sent around to others precisely what has more recently been coming around to them, namely, the violation of individual rights in the field of medicine. The effects of medical licensing have played a major role in encouraging demands for socialized medicine and the threat to the rights of physicians that socialized medicine represents.

Medical licensing has played into the hands of the advocates of socialized medicine precisely by making medical care scarcer and more expensive, thereby reducing the amount of medical care obtained, particularly by the poor. Because the effect of medical licensing was greatly to increase the difficulties of poor people in obtaining medical care, socialized medicine was perceived as all the more necessary. It was a classic case of what von Mises describes as prior government intervention serving as the cause of problems used to justify later government intervention, this time against the beneficiaries of the prior intervention.

The essential goal of socialized medicine is that the individual should be relieved of financial responsibility for his and his family’s medical care. Medical care should be provided to him without charge by the government, paid for out of taxes. To this extent, allegedly, his life will be worry free, because the government will take care of him. Medical care will simply come to him according to his need, paid for by others, presumably according to their ability. It should be obvious that such an arrangement entails the utter perversion of the right to medical care. The right to medical care ceases to be the individual’s right to take the actions required to secure his medical care – namely, to buy it from willing providers. Instead it becomes an alleged right to the fruits of others’ labor and ability, with or without their consent, for that it is the only way it can be obtained if the individual himself is not to pay for it and yet is to have a right to it merely because he needs it. As I have shown, its existence is in direct contradiction of all actual rights, which center precisely on the individual’s freedom from involuntary servitude.

The first major direct step toward the establishment of socialized medicine in the United States came about in connection with World War II’s price and wage controls. The price and wage control authorities typically refused to allow wage increases, just as they typically refused to allow price increases. In the case of wages, however, they made an important exception. They allowed employers to pay for medical insurance on behalf of their employees. Although the medical insurance constituted an additional labor cost to the employers and thus from their perspective was indistinguishable from a rise in wages, the price control authorities did not regard it as a wage increase and therefore allowed it. The income tax authorities also did not regard it as a wage increase and therefore did not tax it. The employees too did not regard it as an actual wage increase either. They regarded matters from what must be called the rather magical perspective of believing simply that their medical needs would be met and that they would not have to pay for it.

After World War II, in the remainder of the 1940s and in the early 1950s, coercive labor unions made employer-financed medical insurance a standard part of their contract demands. Even most nonunion employers were compelled to provide it, in order to avoid giving their employees a reason to unionize. Thus, by the end of the 1950s, employer-financed medical insurance had become the prevailing method of meeting medical expenses throughout the American economy. This is how the system of medical insurance we know today came into being.

Of course, not all medical insurance plans were or are exactly the same. Some require of the worker no out-of-pocket payment of any kind for medical expenses. Others have imposed some kind of relatively modest annual deductible, such as $100 or $200, which the worker has had to pay before payment by the insurance company begins. A common practice has also been that the employee pay some share of the medical expenses beyond the deductible, typically 20 percent of the amount of the expenses up to some rather modest maximum limit, such as, at present, $5,000 (which means a maximum limit of $1,000 as the employee’s own additional contribution).

It cannot be stressed too strongly that this system of medical insurance contains essential features of socialized medicine. And that, as we shall see, is why our problems in connection with medical care have gotten progressively worse since World War II, as the present system of medical insurance was extended and people became more and more acclimated to it.

A leading socialist feature of the system is that the typical wage earner has been led to regard medical care as essentially free, either completely free or virtually completely free, or, at most, 80 percent free after a modest deductible and then completely free after a relatively modest maximum limit on his own outlays. Thus, the psychology of the average American worker in relation to the cost of medical care has become the same as if he were living under communism. For all practical purposes, medical care comes to him simply according to his need for it. This situation is both based upon and reinforces the perverted notion of the right to medical care as a right divorced from considerations of what one has earned and can afford to pay and of the willingness of suppliers to satisfy one’s need out of regard to their own financial self-interest. As I say, under the system of medical insurance of the last forty years or so, medical care appears to come to the average wage earner almost as though by magic, on virtually no other basis than that he needs it.

The present system also shares with socialism – with communism – the further, corollary feature that for all practical purposes the individual’s burden (the actual financial cost of his treatment) is borne by a large group – a more or less giant collective. Thus, when an individual with medical insurance undergoes procedures with a cost of $10,000, say, he personally may pay nothing at all or, at most, perhaps $1,100 or $1,200; the entire rest of the cost is spread over the group as a whole. And if the individual undergoes medical procedures with a cost that is twice as great or ten times as great, the cost to him, if anything at all, will still be no more than $1,100 or $1,200, and the much larger remaining total will be spread over the group as a whole.

This is a system of collectivism. For all practical purposes, it is the same as exists under communism or socialism. Although called medical insurance, it is actually a hybrid of insurance and collectivized medical costs. It is insurance only insofar as it provides for the meeting of extraordinary, catastrophic medical expenses. For the rest, it is a system simply of collectivized medical costs.

True, this system exists for the most part in an environment of privately owned business firms and is financed for the most part by those business firms. But when one recalls how the system was started and how it was spread, namely, by price-control officials and by coercive labor unions, and that throughout the years it has been deliberately supported by a discriminatory tax policy in its favor, one must characterize the system as imposed and maintained by the government, and not as a product of the competitive processes of a free market. Furthermore, as will become apparent later on, additional forms of government coercion serve to maintain the system by making it financially prohibitive for most people to step outside of it. Thus, the system is socialistic in the further essential respect that it is the product of government coercion, not of voluntary choice.

Now this collectivistic system of governmentally imposed "private" medical insurance is the leading cause of the continuous rise in medical costs that we have experienced. To help my students understand this point, I ask them to imagine that after class they all go out together for a meal somewhere, on the understanding that the check will be divided evenly, irrespective of what anyone orders. I explain how this will greatly affect what they order.

I point out, for example, that someone who might be thinking of choosing between, say, a $3 hamburger and a $15 steak, will now be much more inclined to order the steak. This is because instead of the additional cost to him being the full difference of $12, which it would be if each student had to pay his own check, the additional cost to him will now be perhaps just 50¢, that is, it will be the additional $12 divided by 24 (which happens to be the usual number of students in my class). I point out that to the extent that the students behave this way, the size of the total check must increase. Obviously, if what all 24 students ordered were affected in this way, the size of the check that each of them would have to pay would end up being $15 instead of $3, because each of them would experience the effect of 23 other students shifting 50¢ of their additional costs to him. In other words, it would be a situation of mutual plunder, in which all would lose.

I explain how even if things did not start out quite this bad, the dynamics of the situation would tend to make them end up this way, if such meals were made a regular event. I point out that because the students are a relatively small group and know each other to some extent, and probably have some personal regard for each other, many of them might be unwilling to take advantage of the others and thus would order as they normally would, perhaps even more conservatively than they normally would. But all it takes is that a few of them take advantage of the situation. In that case, at the next such outing, some of those who had shown restraint the first time will follow the lead of those who hadn’t and also take advantage of the situation. Soon self-restraint will be regarded as serving merely those who are unwilling to practice self-restraint.

Even if this kind of outcome might be avoided in a small group of individuals all of whom possessed both high regard for one another and high standards of personal responsibility, it is certain that in a group consisting of thousands, tens of thousands, or millions of total strangers, the only possible outcome will be a sharp increase in total costs. Here one can benefit oneself greatly at virtually no significant cost to any other single individual, who is anonymous in any case. In a group of a hundred thousand people, for example, an additional expense of $1,000 incurred on behalf of any given individual means an additional expense of just 1¢ to each member of the group.

Indeed, in the context of today’s system of medical insurance, the way most individuals seem to look at matters is that any additional expense incurred on their behalf is not an additional expense, however small, to other individuals, even anonymous individuals, but merely an additional expense to a rich insurance company, which, they believe, is growing continually richer and can well afford any additional expense.

By the mid-1960s, the collectivization of medical costs imposed by the government had created severe new problems. The rising demand for medical services it had created was pricing medical care more and more beyond the reach of the poor and the elderly. At this point, the government added further intervention to its earlier intervention, namely, the Medicaid and Medicare programs.

These programs, of course, represent a more extreme collectivization of costs for the particular groups they cover. The medical costs of the poor and elderly are charged to the account not of a collective representing the membership of a given private insurance plan, which may range from the thousands to the low millions, but to the account of the country as a whole, that is, a collective representing more than a hundred million taxpayers.

The collectivization of medical costs, both under government-imposed "private" medical insurance and under Medicaid and Medicare, raises medical costs in a variety of ways, each of which deserves consideration. In each instance, the perverted notion of the need-based right to medical care – that is, an alleged right to medical care that entails a claim on other people’s wealth or labor, which must be met with or without their consent – is what underlies both the collectivization of medical costs and the concomitant loss of the individual’s personal financial responsibility. In this way, it is a perverted notion of the right to medical care that is fundamentally responsible for the rising cost of medical care. The following are the specific ways in which this is the case.

1. The potential for a limitless rise in the price of medical services

Insofar as medical services or facilities are limited in supply, the notion of the need-based right to medical care and the collectivization of medical costs to finance it create the potential for a limitless rise in the price of medical services. To understand this, imagine an auction. There are a large number of units of some good for sale. But there are not enough units for sale to satisfy all the bidders for all of their requirements. Thus some bidders must go away empty handed, or at least with fewer units than they would like. (As I indicated before, there could have been a larger number of units for sale, but the government does not let them on to the floor of the auction. It keeps them out by means of licensing legislation.) To the extent that the equivalent of the perverted notion of the need-based right to medical care prevails at this auction and the individual is relieved of financial responsibility by virtue of being able to charge his bids to a collective, there is simply nothing present to stop the rise in the bidding. No matter how high prices go, people still assert their alleged right to the item and go on meeting or exceeding ever higher bids, in the knowledge that their bid will be paid for by their collective. If this is an auction market for medical services, they go on bidding in the knowledge that their bids will be paid for by their insurance company or by the government. The only people who are eliminated from the bidding are those who lack medical insurance or the medical coverage of some government program. The rise in prices only stops if there are enough uninsured bidders who can be made to drop out of the bidding so that, for the moment at least, the insured ones can be satisfied.

Of course, when this situation was reached in the 1960s, and it was the uninsured poor and elderly who had to drop out of the bidding, the government soon stepped in to remedy the situation by making additional billions available for them, through the Medicaid and Medicare programs, so that they could carry on in the bidding for the supplies its licensing legislation had artificially reduced. Then, of course, the uninsured bidders who had to drop out of the bidding were drawn from a higher economic rank, namely, the lower middle class. This was because the rise in prices fueled by the government’s injection of still more funds into the medical market now surpassed their financial ability to pay.

Understanding these facts, incidentally, should make clear why the Clinton administration’s current proposal to force employers to provide medical insurance for the 37 million Americans who remain uninsured, leaves absolutely no alternative but price controls and rationing as the means of controlling costs. This is because if virtually everyone is now to have the need-based right to medical care and have his bills sent to the collective for payment, there will be absolutely no limit to the bidding and the rise in prices unless the government restricts the medical care he is allowed to have and determines the price that is to be paid for it. Try to imagine, for example, a situation in which there are 100 units of a supply available and 137 bidders, each of whom would like to have one unit of that supply and is in a position to send the bill for his bid to the government. The rise in cost to the government can only be controlled if the government imposes some kind of limitation on the amount anyone is allowed to bid for in this manner, such as 100/137 of a unit of the supply, and refuses to allow anyone to attempt to buy more by raising his bid even with his own money, because that too would increase the cost to the government.

(It is true, of course, as critics of the Clinton plan point out, that many of the uninsured are so for only a relatively short time, and that approximately half of them are under 26 years of age. While these facts mitigate the severity of the medical crisis in comparison with what it appears to be if the figure of 37 million is taken without these qualifications, the situation is still extremely serious. It still means that at any given moment there are 37 million people, or the close relatives of many of them, who are exposed to needless financial devastation in the event of a serious illness. In addition, it still means that if the Clinton plan is enacted, not only will the demand for medical care rise correspondingly, but also the potential will be created for a limitless rise in the price of medical care in the absence of extensive government controls restricting its use.)

2. The potential for a practically limitless increase in the quantity of medical care demanded

The notion of the need-based right to medical care and the collectivization of medical costs to finance it create the potential for a practically limitless increase in the quantity of medical care demanded. When visits to doctor’s offices are made free or almost free, the frequency of such visits increases. More importantly, physicians quickly come to realize that there is little or no financial cost to the patient as the result of the course of treatment they prescribe. The result is an enormous increase in the volume of medical tests, hospitalizations and the length of hospital stays, and of surgeries and other medical procedures. Usually, there is some genuine value to be gained from these things. They represent additional precautions or are objectively desirable in some other way. It is just that there is no longer any consideration of the costs involved. The situation is comparable to individuals who need to buy some kind of automobile, say, being relieved of the responsibility of having to pay for it, and so being placed in a position in which the automobile they choose is a very expensive top-of-the-line model. In such conditions, the patient does gain something additional, and so do the medical providers, who are placed, in effect, in the happy position of automobile salesmen dealing with customers for whom the sky is the limit. In such circumstances, the potential for medical cost increases is truly stupendous. It has no fixed limit. For example, there are some 2,000 different possible tests of a patient’s blood that can be performed without harm to the patient and from which useful information can be derived. If each of these tests had a cost of just $1, the total cost, if all 2,000 tests were applied to everyone in the United States, would be more than $250 billion per year. Under the system that has prevailed since World War II, it is only a question of time before such cost increases actually take place, unless they are deliberately prevented by outside action. There is nothing in the system itself to stop them, and everything to encourage them.

This is because at each step, it is others who bear the costs. In the case of Medicare and Medicaid patients, the patients and the providers gain at the expense of the government and thus, ultimately, the taxpayers. In the case of privately insured patients, the patients and the providers gain at the expense of the medical insurance companies and ultimately at the expense of the general consuming and wage earning public. Consumers or wage earners are the ultimate victims of the higher medical costs because the resulting rise in medical insurance premiums charged to employers raises the production costs of goods and services and therefore their selling prices. The rise in selling prices results in reduced quantities demanded of goods and services. This in turn causes unemployment, because employers will not go on producing what their customers will not buy. To prevent the unemployment, wage increases that would have taken place must be foregone in order to limit the rise in costs and prices and thus the decrease in quantities of goods and services demanded.

The effects I have just described are, of course, rarely if ever recognized. All attention has been directed to the effect on the cost of medical care to the uninsured, to the government, and to "society." The reality, however, is that the average insured wage earner, who believes he suffers no ill effects from the present system so long as he keeps his job, is actually a major, unseen victim of the system. This is because his take-home wages would be a good deal higher than they now are, as well as the price of medical care being radically lower than it now is, if the present system had not been adopted. The average insured wage earner is in the position of the students I described earlier who end up paying $15 when what they actually wanted to order cost only $3. In effect, instead of paying $3 out of their own pocket, their employer pays $15 that he deducts from the wages they could have had. Indeed, this understates their loss, because, as I showed a few paragraphs back, a closely related effect of the system is to raise the price of a unit of medical care insofar as the system fosters a process of more intense bidding for limited supplies. Thus the $15 that is taken out of the average worker’s wage buys much less than it would have bought if he himself had actually wanted to spend $15 on medical care, because in that case he would not have encountered the competition of an artificially induced increase in demand for medical care. In addition, the $15 ends up buying less for all of the further reasons that are described in the discussion that follows.

3. Irrational medical malpractice awards

The notion of the need-based right to medical care and the collectivization of medical costs to finance it are largely responsible for the growing problem of irrational medical malpractice awards. They imply that what the patient is entitled to is nothing less than medical care that is state of the art. This follows because if a person’s mere need for medical care is what entitles him to it, then if his need is better served by more expensive medical care than by less expensive medical care, he is entitled to the more expensive medical care. If his need is best served by the most expensive medical care, then that is what he is allegedly entitled to. In this way, medical care that is anything less than state of the art comes to constitute malpractice – because it represents giving the patient less than his medical need allegedly entitles him to. Indeed, courts have found physicians guilty of malpractice for so much as considering their patient’s financial circumstances in determining their course of treatment.

The fear of being the object of a malpractice suit leads physicians to practice what has come to be called "defensive medicine." This is the practice of prescribing tests and procedures not because they are objectively necessary in the circumstances, but merely in order to provide documentation that will serve to protect the physician in the event of a subsequent malpractice suit, and which thus can serve to prevent such a suit from being brought. Defensive medicine has been estimated to account for more than one-third of the total cost of health care. (See Leonard Peikoff, "Medicine: The Death of a Profession" in Ayn Rand, The Voice of Reason [New York: New American Library, 1988], p. 304.)

4. Perverting technological progress into a source of higher costs rather than lower costs

The notion of the need-based right to medical care and the collectivization of medical costs to finance it are responsible for the perverse effects caused by new technology in the field of medicine. In virtually every other field – automobiles, computers, farming, whatever – improvements in technology represent a combination of higher quality and lower real cost. Thanks to improvements in technology, we now obtain far better goods than we used to and have to devote much less of our working time to being able to earn the money to buy any of them. Today, for example, thanks to improvements in technology, the average worker works perhaps forty hours a week and is able to buy with the wages he earns the array of goods that quantitatively and qualitatively constitutes today’s average standard of living. A few generations ago, the average worker worked sixty hours a week and received much less in terms of the goods he could buy with the money he earned. Thus, calculated in terms of the amount of labor that must be expended to earn a unit of goods, the effect of improvements in technology has been progressively to reduce the price of everything. That is, because of improvements in technology, people have been able to obtain virtually everything for the expenditure of progressively fewer and fewer hours and minutes of their labor than in the past.

Medical care, in the last few decades, is the exception.

The only reason it is the exception is the existence of the notion of the need-based right to medical care and the collectivization of medical costs to finance it. If there were a notion of a need-based right to computers, say, and the collectivization of the costs individuals incurred to buy computers, then improvements in computer technology would have the same perverse effect. Then the development of every improved computer chip, hard drive, monitor or whatever would immediately be accompanied by an immense demand. Everyone who could benefit from such things would want them, in the knowledge that he could have them at little or no cost to himself, because the collective would pay.

Improvements in technology do not have such effects in the case of computers or any other good besides medical care for the simple reason that people must buy these goods with their own money. Thus they weigh the benefits against the costs. To the extent that new technologies are expensive, the initial buyers are confined to those who value them above their high price. In the case of consumers’ goods, this means both people with a relatively great, intense need or desire for the item rather than people with a relatively modest need or desire for the item, and richer people rather than poorer people. The buyers are those who have the greatest combination of need and desire and wealth and income. In the case of capital goods, the initial buyers are confined to those in a position to derive a monetary gain from the improvement that is substantial enough to justify paying its high cost.

As the item develops a market, and experience is gained in producing it, its cost of production tends to fall and its quality to improve. Competition, even the mere possibility of competition, also operates very powerfully to reduce costs and prices and improve quality. In this way, on the basis of falling prices accompanied by improving quality, the new technologies become more and more affordable and thus reach wider and wider markets. They enrich the growing number of individuals who can afford to buy them and thus "society as a whole," which is comprised of nothing but its individual members. They certainly do not impoverish "society," as people ignorant of economic principles frequently allege to be the case with regard to improvements in medical technology.

Very often, the effect of the falling prices and improving quality is to enlarge the quantity of the new goods that people buy to such an extent that they spend more and more in total on the industry that produces them, with the result that the industry comes to account for a growing proportion of the so-called gross national product or gross domestic product. This, of course, is what happened in the case of the automobile industry in the first several decades of this century, and, more recently, in the computer industry. In a free market, advances in medical technology could also have such an effect. That is, they could be responsible for medical care coming to represent a growing proportion of the economic system, but if so, it would be on a foundation of progressively falling real costs of medical care (that is, progressively falling costs calculated in terms of the hours and minutes of labor required to earn the money to pay for any given amount of medical care).

Thus the problem of medical care today absorbing more and more of people’s incomes in conjunction with improvements in technology, and at the same time becoming more and more expensive rather than less and less expensive, is in no sense the result of improvements in technology. It is the result of nothing but the perverted notion of the need-based right to medical care and the resulting collectivization of payment and loss of individual financial responsibility that it engenders. This is what makes new medical technologies into a source of higher costs rather than the cause of lower costs.

5. The very high prices of many patented prescription drugs

The perverted notion of the need-based right to medical care and the collectivization of medical costs to finance it help to explain the very high prices of many patented prescription drugs. The prices of goods enjoying patent or copyright protection, or which are produced under a unique, secret technology – that is, the prices of goods whose sellers need not fear direct competition – are set with regard to what economists call the elasticity of demand. This is a measure of the extent to which charging a higher price results in a reduction in the quantity of the good that people are prepared to buy. Sellers of such goods do not want to set the price so high that the reduction in sales volume outweighs the rise in price. They set a price or prices that are low enough to enable them to retain the bulk of their volume. (This often entails price discrimination – that is, charging different prices for the same or substantially the same good to buyers in different parts of the market: a higher price or higher-priced version in the high-income end of the market and one or more lower prices or lower-priced versions in the lower-income segments of the market.)

It follows that to the extent that the market comes to be made up of buyers for whom price is no object, because they are covered by today’s private medical insurance companies or by government programs, the price that it is profitable to charge is correspondingly increased. This is because to that extent, the higher price does not operate to reduce the quantity of the drug demanded. Thus the incentive is created to charge a higher price. At the same time, various prohibitions against price discrimination serve to prevent the offering of lower prices or lower-priced versions to those who lack insurance and are outside of the government programs. Today, if a drug company offered a lower price or lower-priced version to anyone, the government and many or most of the private insurance companies would almost certainly demand that they too obtain the benefit of the lower price or lower-priced version. Thus, the offering of a lower price or lower-priced version to any segment of the market does not pay, and the result is that everyone is confronted with artificially higher drug prices. (These observations, made with respect to the domestic market of the United States, are confirmed by the recent furor caused by newspaper reports of the availability of lower drug-prices in Mexico.)

The fact that I have stressed the role of the alleged need-based right to medical care in raising drug prices should not be understood as minimizing the role played by arbitrary FDA regulations that delay and inhibit the introduction of new drugs. These are responsible for the average new drug that is introduced having a development cost and thus price, far in excess of what market conditions require.

6. Hospitals wasting money in the purchase of unneeded costly equipment

The perverted notion of the need-based right to medical care and the collectivization of medical costs to finance it are also responsible for the phenomenon of hospitals being able to waste vast sums of money in the purchase of costly equipment from which they derive relatively little use. In any other industry, if companies buy expensive equipment that they use insufficiently, they lose money, or at least make less money than they could have made. Buyers of their products are not willing to reimburse them for their wasteful expenditures. As a result, they try to avoid the practice, and quickly stop if they make such a mistake. But when the buyer is a nonprofit collective with unlimited access to the resources of the taxpayers, namely, the United States government, and pays according to the sellers’ costs – in this case, the hospitals’ costs — whatever those costs may be, then there is no reason for the sellers to limit their expenditures. The same result exists if private, for-profit buyers are legally obliged to pay rates that cover the sellers’ costs whatever those costs may be, which is the position that the private medical insurance companies have been in, in relation to hospitals.

The government’s response in such circumstances is to take control of the expenditures the sellers are allowed to make. This is why hospitals in many states are now required to have a so-called certificate of need from the government before being allowed to make any significant-sized equipment purchase. The situation is analogous to what prevails in the case of farm subsidies. There the government has obligated itself to buy farmers’ crops at an artificially high price. In order to limit its expenses, it controls the amount of acreage the farmers are allowed to plant, or requires that they possess a license to grow the crop. (In practice, certificates of need have thus far only been imposed by state governments, which are mandated by federal law to pay for substantial and rapidly growing costs under the Medicaid program, and which are responsible for finding the funds with which to do so on their own.)

It should be realized that the government can also be motivated to impose restrictions on hospitals’ purchases of equipment even in conditions in which the purchases are entirely necessary and appropriate. To the extent that the hospitals’ patients are served for free, at the government’s expense, the restrictions on the purchases appear from the government’s perspective simply as a saving of cost – that is, as a saving of cost unaccompanied by any reduction in revenue. The patients are worse off, but from the government’s perspective all that happens is that its cost is less.

7. Below market Medicaid rates and cost shifting

The perverted notion of the need-based right to medical care and the collectivization of medical costs to finance it are also responsible in the last analysis for the rise in medical costs that takes place as the result of the practice adopted by many state governments of keeping their schedule of allowable Medicaid charges substantially below the prevailing market level. This is a practice, which, like that of requiring certificates of need, has been adopted for the purpose of controlling federally mandated state government expenditures under the Medicaid program. It is a practice which has led to many physicians refusing to accept Medicaid patients, because of inadequate compensation. In the case of hospitals, which cannot refuse to accept Medicaid patients when they appear in the emergency room, the result has been a correspondingly greater rise in the costs charged both to private medical insurance companies and to the federal government under the Medicare program. The process is known as cost shifting. That is, to the extent that the hospitals’ costs are not reimbursed by the Medicaid program, they are shifted in the form of higher charges to patients covered by private insurance companies or the Medicare program. Private patients who are not insured are also confronted with higher charges on account of this shifting of costs. (The same kind of cost shifting occurs insofar as hospitals are legally compelled to accept other patients with no means of paying.)

Since the mid-1980s, when the Medicare program adopted the policy of payment according to "diagnostic related groups" (DRGs), cost shifting has intensified. Now Medicare payments also frequently turn out to be inadequate to cover the costs of treatment. This inadequacy is added to the insufficiency of Medicaid payments. The inadequacy is further compounded to the extent that private insurance companies have adopted the DRG standards of payment. The total, combined shortfall is then passed along to the remaining patients, above all, the uninsured.

8. Bureaucratic interference with medicine and the rise in administrative costs

As we have seen repeatedly, the effect of the alleged need-based right to medical care and the collectivization of costs to finance it, is to make the cost of medical care rise beyond all bounds. But as the last two points of discussion indicate, sooner or later the continuous rise in medical costs encounters resistance – not from the great majority of individual citizens to whom everything still appears to be free, but from the officials of the collectives that must meet the ever rising charges. Thus, in an effort to limit the rise in costs, more and more bureaucratic controls are introduced by all the various collectives that must pay the costs. Under the controls, the insurance companies and the government agencies administering the Medicare and Medicaid programs must be kept advised of every step of the treatment of each of the patients insured or covered by them. A mountain of paperwork develops. The filing of all the various bureaucratic forms is inevitably accompanied by frequent haggling back and forth on a case by case basis between physicians and hospitals, on the one side, and the insurance companies and federal and state governments, on the other. The inevitable further result is another major source of higher medical costs, namely, a sharp rise in administrative costs. While the rise in administrative costs is less than the altogether boundless rise in costs that would otherwise take place, it is nonetheless very substantial in its own right, and represents a further loss to the general public that must be charged to the perverted notion of the need-based right to medical care. (A rather seamy, related aspect of the collectives’ attempt to control costs is the apparent practice of some private insurance companies of "losing" many of the insurance claims submitted to them or of suddenly finding the need for additional, often irrelevant information. These are ruses designed to postpone payment and thus reduce the pressure of cost increases outstripping rate increases. This, of course, adds further to administrative costs by making the physicians, hospitals, and clinics who are claimants, go to the trouble of repeatedly refiling or amending their claims.)

In addition to everything that can be traced specifically to the perversion of the right to medical care, there is the impact on the cost of medical care of government regulation in general. Alleged safety regulations, environmental regulations, labor regulations, and so on all add more or less substantially to the cost of medical care, just as to the cost of everything else. Probably, they have added more to the cost of medical care than to the cost of most other things, because of the lack of buyer resistance that the perverted notion of the need-based right to medical care engenders in the field. For example, the resistance to the employment of unnecessary workers in connection with union featherbedding practices is certain to be less in hospitals to the extent that the hospitals know they can pass the extra cost on to the insurance companies or to the government.

Thus, in all of these ways, the perverted notion of the need-based right to medical care, that is, an alleged right to medical care with or without the consent of those who are to pay for it or provide it – that is, an alleged right to medical care as entailing a right to steal and enslave – has progressively raised the cost of medical care. It and it alone is responsible for the crisis of the ever rising cost of medical care. At the same time, as the corollary of its destructiveness, this perverted notion of the right to medical care has systematically undermined the actual, rational right to medical care. This cannot be stressed too strongly. In each and every instance in which it has raised the cost of medical care, as explained under the eight points I have listed, it has represented a case in which individuals who could have afforded to buy medical care from willing providers have been prevented from doing so by the initiation of physical force. In other words, therefore, it is the government’s violation of the actual, rational right to medical care that is equally responsible for the crisis in medical care.

In view of all this, it is difficult to decide which is the more astonishing: the utter ignorance of all of the above facts Mrs. Clinton revealed in her declaration that "On psychological as well as economic grounds, some form of discipline [i.e., price controls] in a marketplace that, frankly, has had none, seems to us a feature that needs to be there as a backup," or the fact that Mrs. Clinton has somehow managed to acquire the reputation of being an expert on the subject she has been spending so much time speaking about lately. It should be obvious to anyone who can understand even the barest essentials of economic theory, that the cause of the crisis in medical costs is precisely the philosophy of collectivism and government interference Mrs. Clinton advocates and now wants to extend further. (Mrs. Clinton’s statement appeared in the Orange County Register, Oct. 10, 1993, p. 2.)

3. The Clinton Plan

The Clinton plan seeks to solve the problems created by government interference with medicine up to now by adding further, even more destructive government interference with medicine. While the effect of the government’s violation and/or perversion of the individual’s actual, rational right to medical care – namely, his right to buy it from willing providers – has thus far been more and more to restrict that right and to undermine its value by making it more and more expensive to exercise, the Clinton plan would destroy the rational right to medical care altogether. It would substitute for the present, very bad situation, characterized by a semi-private room in a hospital costing $1,000 to $1,500 a day, the much worse situation in which the medical care one seeks and is willing and able to pay for cannot be obtained at all, because the government refuses to allow those who would provide it to do so. The Clinton plan seeks nothing less than to deprive the citizen of his essential right to use the offer of money as the means of obtaining the medical care he wants and instead to make him dependent on the medical care the government is willing to allow him to have.

Inasmuch as we have had essential features of socialized medicine for many years, the Clinton plan should not be thought of as representing the inauguration of socialized medicine in the United States. It should, however, be thought of as representing a more extreme, fuller-bodied, and uglier form of socialized medicine than we have had thus far. It should be thought of, in effect, as socialized medicine discarding the ballerina shoes it has been parading around in up to now, and replacing them with a pair of hobnailed boots – as taking off the velvet glove and revealing a mailed fist.

Up to now, under the perverted notion of the need-based right to medical care and the collectivization of costs to pay for it, the government has essentially allowed individuals to obtain as much medical care as they and their physicians have deemed necessary or appropriate. Under the Clinton plan, the government, through a "National Health Board," will henceforth decide what medical care is to be provided and by what methods. Through a set of quasi-public bodies known as "regional alliances," the government will determine what it pays for medical care. These "alliances" are to "negotiate" with insurance companies, which henceforth are to be the providers of medical care, in the manner of present-day health maintenance organizations such as Kaiser Permanente or Cigna. Every American citizen is to be compelled to join a government-approved insurance plan. All the plans will offer a uniform set of medical benefits and operate under the guidance of the National Health Board. Funding for the plans is to come mainly from the present-day employer-financed health insurance premiums. The so-called regional alliances are, in effect, to tax away these premium payments and use them themselves to pay the insurance companies. Large corporations – those with more than five thousand employees – may constitute themselves as "corporate alliances" and deal with the insurance companies directly, as they do now.

The essential purpose of the Clinton plan is to reduce spending for medical care in the United States at the same time that it brings 37 million presently uninsured individuals under the umbrella of the alleged need-based right to medical care. Thus 37 million additional individuals are to be placed in a position in which medical care will appear to be free. (I must digress to point out that a significant number of these individuals will also become unemployed, as their employers, who until now have not paid health-insurance premiums, are compelled to pay a major new and additional employment cost in the form of a medical payroll tax that the regional alliances will collect on these individuals’ alleged behalf. The results must be the same as those produced by a rise in the minimum wage or in union scales, namely, a reduction in the quantity of labor demanded and thus unemployment.)

The quantity of medical care demanded will rise correspondingly, with this enlargement of the number of those eligible to receive it as an alleged need-based right. At the same time, financing to meet the demand for medical care is to be reduced. Indeed, the Clinton plan aims to reduce spending for medical care on behalf of those presently covered by employer-financed health insurance plans to such an extent that when the savings from the medical insurance premiums are paid over to the employees as additional wages, the federal government’s tax collections on the wage earners will go up by $51 billion. (New York Times, Sept. 21, 1993, p. A13.) If you realize that the extra federal taxes the workers will pay are on the order of 25 percent of their additional incomes, the implication is that the Clinton plan contemplates slashing something on the order of $200 billion or more from medical spending on behalf of today’s insured wage earners.

It should be obvious that under such conditions, no other outcome is possible but shortages and rationing, for there will be a vast increase in the quantity of medical care demanded and, at the same time, a major decrease in the financial resources made available to meet the demand.

Doctors’ offices will fill up. Long waiting lists will develop for practically every type of medical procedure. As in Canada today, more people will die on the waiting list for heart surgery than on the operating table. (See Imprimis, November 1993, p. 3.) The more expensive kinds of procedures will be performed much less frequently, if at all, and their place will be taken by lower-cost, less reliable or less effective alternatives, as every provider of medical care is placed on a limited budget and obliged to treat the collectivity of his patients within the limits of that budget. In this connection, no one should be fooled by the fact that the Clinton plan promises the continued existence of traditional fee-for-service medical practitioners and free choice among them. They too will be placed on strict budgets and their methods of treatment closely monitored and controlled by the government in its efforts to limit expenditures for medical care. No one should imagine that the additional $1,140 per year or less that this variant of medical insurance is to be allowed to cost under the Clinton plan will enable anyone to obtain significantly more medical care than the member of the typical HMO-type scheme that is envisaged. (The proposed cost to the individual for the fee-for-service type plan is a maximum of $1,500 per year versus $360 per year for the HMO-type plan. The HMO-type plan also requires a $10 copayment for each visit to a doctor’s office.) And even the allegedly continued legal right to choose one’s physician will be lost once the demand for his services comes to exceed his ability to render them and he is prevented from restoring balance between demand and supply because he is prohibited from raising his rates or raising them sufficiently to do so.

In following the less expensive medical procedures, the physician will be legally safe, irrespective of the effect on the individual patient, so long as his treatment is within the parameters of appropriate treatment to be set forth in detail in various "Practice Guidelines" that are currently in preparation by the government. These "Practice Guidelines" will be the bureaucratic rule books that, when strictly followed, will be the physician’s protection against the charge that he failed to do as much as he might have done for the health of his patients. At the same time, it will be against the law for patients to offer physicians or other medical care providers additional fees in order either to get to the head of a waiting list or to secure the more effective but costlier methods of treatment they may require by enabling the providers to go beyond their fixed budgets. Indeed, the Clinton administration’s Health Security Preliminary Plan Summary, published by the U.S. Government Printing Office, notes, ominously, that among the plan’s provisions are "New criminal penalties for health care and for the payment of bribes or gratuities to influence the delivery of health services and coverage" (p. 4).

Thus, physicians are to be reduced to the level of postal clerks, deterred by the threat of criminal penalties from providing the medical care an individual patient needs and is willing to pay for, and at the same time, by the very same set of facts, the individual patient is to be rendered impotent to secure the medical care he needs and is willing to pay for. This interposition of brute government force between physician and patient, this utter destruction of the real, rational right to medical care, is what the Clinton plan has in store for the American people. As I have already said, what is present here is an attempt to deprive the citizen of his essential right to use the offer of money as the means of obtaining the medical care he wants, and instead to make him dependent on the medical care the government is willing to allow him to have. Such a situation represents a government gun aimed at the heads of the citizens, preventing them from securing their health and their lives by the exercise of their own free judgment and that of their freely chosen physicians.

Despite these facts, President Clinton claims that his plan will preserve individual choice and provide medical care that is as good or better than that now provided, but will do so for everyone in the United States, and will do so for less money than is now spent for medical care. Whenever anyone hears these claims, he should remember the claim this same gentleman repeatedly made before his election – that he would enact a tax cut for the middle class. These latest claims of his have even less to do with reality.

Among the areas of medical care likely to suffer the most under the Clinton plan are those which represent the leading edge of medical technology. Of necessity, these almost always begin with a relatively high cost. In addition, their full importance and range of application is often not seen for some time. A system dominated by bureaucratic routinists is not conducive to their encouragement, even apart from the fact that their introduction under the perverted notion of the need-based right to medical care operates, as we have seen, sharply to increase spending for medical care, which is the very thing the government wants to avoid. Thus it is not accidental that, in it its efforts to control medical expenditures, the Clinton plan makes virtually no provision for the introduction of major new medical technologies. The plan’s contemplated restrictions on the profitability of new drugs will also strongly operate against progress in medical technology.

Another leading candidate for cutbacks in medical care are the aged. The cost of treating them is high, and their remaining years as taxpayers are few, if any. It is not accidental that in Great Britain, for example, it is extremely difficult, if not impossible, for people over the age of fifty-five to obtain coronary-artery-bypass operations, and that elderly people with a broken hip are likely to die before they reach the top of the waiting list for such operations.

Even the Clinton plan’s much vaunted goal of reducing administrative costs will not result in any genuine saving. The administrative costs under the present system are not accidental. They are necessitated by the need to deal with the mountains of claims made on the system by patients and practitioners proceeding under the perverted notion of the need-based right to medical care and who are attempting to collect their due under that alleged right. Any administrative cost savings that will be achieved will be of the character of the post office or motor vehicle department not having enough clerks to serve the lines of waiting customers, or of the practice of various government agencies of not answering their telephones. Moreover, any such cost savings will almost certainly be dwarfed by the enormous additional costs of having to deal with the claims of the 37 million presently uninsured individuals who are to be brought into the system by the Clinton plan.

As to the claim that the Clinton plan fosters competition, which will operate to reduce the cost of medical care, one need only bear in mind that what the Clinton plan envisages as competition is "managed competition" – an oxymoron if ever there was one. The meaning of managed competition – i.e., competition controlled by the government – is precisely that there is no freedom of competition. What is admitted into the market is only what the government wishes to allow. The actual description of such a situation is monopoly – that is, presence in the market is made a matter of the grant of government privilege; the market is reserved to the exclusive possession of those the government wishes to allow to be in the market, while all others are excluded by means of the government’s threat to fine or imprison them, that is, by its threat to initiate the use of physical force against them. Under the Clinton plan, the decision of which insurance companies will be allowed in any given market will be made by the quasi-governmental "regional alliances."

Thus the "competition" the Clinton plan envisages is competition among providers operating within its guidelines of medical treatment and to the satisfaction of its regional alliances. The medical insurance companies are to compete in delivering medical care at the lowest cost within these parameters. Individual citizens are then to choose among the medical insurance companies allowed to compete by the regional alliances.

In the framework of this kind of "competition" – that is, monopoly – the operation of the profit motive is likely to turn out to mean the realization of some of the worst nightmares collectivists and socialists have about the effects of the profit motive, for the Clinton plan makes the source of profit nothing other than the withholding of medical care from the sick. An insurance company will be the more profitable, the more consistently its treatment methods conform to the minimum standards allowed by the government’s "Practice Guidelines." In fact, the arrangement is nothing less than a formula for near murder. This is because so long as an insurance company both complies with the practice guidelines and turns in an overall performance record that is judged to be statistically satisfactory, it has absolutely no reason to make the substantial additional expenditures that may be necessary in individual cases to save a human life. At the same time, of course, the individual whose life is at stake is prohibited from offering the insurance company or its practitioners additional money of his own to obtain the medical care he requires.

This monstrous system operates to draw even the individual physician into its deadly game by paying him a flat fee per patient, a so-called capitation fee. It thereby creates an economic incentive for the physician to do as little as possible for the patient, indeed, to have as many patients as possible with as few illnesses as possible. Those are the ways a physician can earn the highest income under the Clinton plan, because in such ways, he receives the same revenue and has the lowest costs. In fact, the kind of "medical care" that can be expected if the Clinton plan is enacted is less and less actual medical care and more and more efforts to avoid sickness by promoting so-called "wellness," such as through attempts to change patients’ "lifestyles." The logic of the arrangement implies that what can be expected instead of medical care is hectoring on behalf of the latest health fads concerning diet, exercise, and stress.

Indeed, it is difficult to imagine a worse arrangement than one in which one’s well-being and very life are made to depend on the largesse of necessarily indifferent government officials who will pay a given amount on one’s behalf to some other set of strangers for one’s total medical care and who then pretend that the problem of one’s care is provided for, while the individual himself is prevented from going out and offering money for his care – more money for more care – and thereby enlisting the self-interest of others in his care.

President Clinton describes his proposed little red, white, and blue card that every American will have to carry as the "National Health Security Card." He has said, "With this card, if you lose your job or you switch jobs, you’re covered…. If you leave your job to start a small business, you’re covered. If you’re an early retiree, you’re covered." The card, according to Mr. Clinton, represents the security of insurance "you can never lose." (New York Times, September 23, 1993, p. 1.)

The truth is, as the present discussion confirms, that the individual has no security of medical care when he is deprived of his essential right to buy medical care, and his medical care is placed in the hands of the government. Under such conditions, his medical care is as secure as that of a convict.

Individual cases and the lives of individuals do not matter to the authors of the Clinton plan. The Clinton plan is founded upon and spurred on by an unchallenged mentality of collectivism and statism, which regards the United States and its people as the property of the government. It is from this perspective that its intellectual supporters and alleged experts complain about the growing percentage of the "gross national product" that is devoted to medical care and about the deprivation of other, allegedly more important uses for the additional share of funds devoted to medical care, such as "education." They look upon the income and wealth produced by tens of millions of separate individuals in the United States and properly belonging to those individuals separately and individually, as though it resided in one giant pot, whose disposition was not to be decided by the individuals to whom it belongs, but by the government. By the same token, they regard the people of the United States not as separate, free and independent individuals, with the right to make their own, free and independent choices on behalf of their own individual well-being, but, in effect, as human livestock, whose work and wealth, indeed, whose very lives are to be devoted to the fulfillment of the government’s plans. (Unfailingly, each of the alleged intellectuals and experts always assumes that the government will act according to his particular plan and not according to any plan he may not like. In effect, he projects himself upon the lives and destinies of his fellow citizens as though he were the government, or, what is the same thing, the trusted adviser whose advice the government will automatically always follow. In regarding his fellow citizens and their property as the government’s property, he implicitly regards them as his property.)

It is on the basis of their mentality of collectivism and statism that the authors of the Clinton plan seek to impose a system of medical care on the American people that will be determined not by individuals acting for their own self-interest with the help of the best their money can buy, but from on high, by considerations of the nation’s medical spending in relation to its gross national product. These considerations, as interpreted and applied by the proposed National Health Board, will extend their tentacles from the nation’s capital out into the examining office of every doctor and into every hospital and operating room by means of governmentally imposed fixed budgets and "Practice Guidelines." They will determine the course of treatment that is deemed appropriate in the individual case that stands before the physician or that is to lie before him on the operating table. Thus, the life of the individual patient and the thinking and planning of the physician in the service of the individual patient’s life are no longer to be what medicine is about. Instead, it is to be about "national priorities" and considerations of nationwide medical spending in relation to the gross national product. This is an utter perversion of the art of medicine. It is an utter perversion of what the United States of America and its Constitution and Bill of Rights are about. The Founding Fathers of the United States did not create this country so that someday a generation of descendants would so debase themselves as to welcome the prospect of living as serfs on a vast, transcontinental feudal estate presided over by President and Mrs. Clinton.

With their constant pandering to people’s fears of insecurity and their pretended offer of an escape through the abandonment of the remnants of individual freedom in the area of medicine, the Clintons and their propaganda retinue seek to exploit human weakness. They are attempting to lead masses of fearful and ignorant people into a situation of the profoundest danger to their very lives with the siren song that whoever finds facing the world on his own to be too difficult, has only to give up the struggle and let the government – the jailer – take care of him. Put yourself in the hands of the government, they say, and then you don’t have to worry, you don’t have to think about how to provide for your medical needs. The government will do it for you. Never mind that it is precisely the government’s taking care of things that has made life in this area so difficult. Just close your eyes and look forward to the security you will have with the little red, white, and blue card.

Yes, I say, learn to close your eyes a little further and you can look forward with pleasurable expectation to all the security you might have if the little red, white, and blue card guaranteed you food, clothing, and shelter, along with medical care. What the Clinton plan is offering is exactly the same kind of illusory security as offered under communism – the security of rightless serfs, which means: not security, but miserable poverty and insecurity. Poverty and insecurity are the results in any and every area of life in which the individual loses the right to pursue his own self-interest by means of meeting his needs through buying from willing sellers, who are motivated by serving their self-interests. Poverty and insecurity will be the results in medicine if the Clinton plan is enacted.

All of the essential criticisms made of the Clinton plan apply to the current "Obama plan." It too seeks to add tens of millions of people to the collectivized medical "insurance" rolls while at the same time sharply reducing overall expenditure for medical care by means of force. This can have no other result than taking away much of the medical care presently received by millions of people. The care received by the elderly will almost certainly be a prime target.

4. The Free-Market Solution

The actual solution to the problem of runaway medical costs lies in the precise opposite of the direction chosen by the Clinton plan. It is not the final destruction of the individual’s rational right to medical care, which is what the Clinton plan would achieve, but the restoration and full implementation of that right – that is, the removal of all government interference that stands between buyers and sellers of medical care or in any way causes medical care to be more expensive than it otherwise would be.

In economic terms, the solution is the establishment of a market in medical care that is open to all comers and is dominated by buyers and sellers operating with their own money when acting in their individual self-interest. On the one hand, in such a market – provided that it is free from government interference – the cost of medical care is as low as the prevailing supply of human talent and state of capital accumulation, technology, and competition make it possible to be, and is headed still lower by virtue of further capital accumulation, technological progress, and competition. On the other hand, however, medical care always still has a cost, and the need to take into account costs that come out of one’s own pocket automatically eliminates wasteful, uneconomic medical care.

Thus, insofar as the market is free, individuals prepare themselves for and enter those particular occupations and industries in which, other things being equal, they can earn the most. In this way, the supply of human talent flows to where the buyers need and want it the most, as demonstrated by their willingness to pay for it the most. If all branches of the market are legally open to all comers, no field in which wages or profits are higher is deprived of talent by virtue of the necessary talent being confined to other fields where wages or profits are lower. Thus, in the case of medical care, everyone tends to enter the field if his talents are more valued in the provision of medical care than in the provision of other services he is capable of rendering. In other words, medical care attracts all the talent it is capable of attracting short of the point of asking individuals to give up more remunerative uses for their abilities in other occupations. This is true both of medical care in general and each of its specific occupations, from nurse’s aide to brain surgeon.

As a further matter of economic principle, the same freedom of occupation that enables each individual to maximize his income, simultaneously serves to minimize the price of all services requiring relatively scarce talents. This is precisely because of the presence in such occupations of the largest possible number of those capable of performing them consistent with their own self-interest. Thus, under the freedom of occupation, the prices of the relatively scarce special talents that are necessary to provide medical care would be as low as they could reasonably be rendered. For example, individuals who are presently compelled to remain as pharmacists but who have the ability to be physicians, would be attracted by the higher income of physicians and become physicians. The effect of the larger supply of physicians would be to reduce the fees of physicians.

As I have indicated, all this is in sharpest contrast to the conditions that exist under medical licensing. Under those conditions, a more or less considerable portion of the relatively scarce talents required to provide medical care is forcibly denied entry into the field and made to work at lower incomes in other lines. By the same token, the prices of medical services and the incomes derived from their rendition are kept artificially high. For example, the pharmacist with the ability to be a physician is forced to remain as a lower-paid pharmacist, with the result that the fees and incomes of physicians are kept artificially high.

This is the appropriate place to deal with the rationalization offered in defense of medical licensing, namely, that it is necessary to assure the quality of medical care by imposing high minimum standards for its practitioners. The truth is that the standards imposed by licensing legislation are largely arbitrary and serve to exclude many competent providers from the market and correspondingly to deprive the buyers of their services. As far as medical licensing legislation does achieve any actual elevation of minimum standards of medical care, it is analogous to the effect that would achieved by imposing an arbitrarily high minimum standard for the kinds of automobiles that could be driven on the roads. If such a minimum standard required, for example, that no car could legally be driven that was more than five years old, say, there would undoubtedly be some improvement in the quality of the average car on the road. At the same time, a substantial number of perfectly good, useable automobiles would be kept off the roads. Again, the principle victims, of course, would be the poor, who could afford the older cars, but not the newer, more expensive ones.

It should be realized that as far as any actual guarantees of medical quality are required by means of various forms of certification, a free market is fully capable of providing them. No one would be able to claim the possession of degrees or certificates he had not actually earned. Such action would be fraud and severely punishable. Indeed, the members of the various state medical licensing boards around the country could constitute themselves into private certification agencies and give or withhold their seal of approval to individual medical practitioners on any basis they wished. They would simply lack the power to make the absence of their particular seal of approval the basis of fining or imprisoning anyone who chose to practice medicine without it. The consumers of medical care, who presently retain the right to judge the qualifications of the state governors and legislators who are responsible for the appointment of the members of the medical licensing boards, would decide for themselves the value of certification by this or that organization. They would decide on the basis of considerations analogous to their choice of distinct brands of all kinds of products. Indeed, if ordinary men and women are to be allowed to vote in elections in which their votes ultimately determine the most complex matters of foreign and domestic policy, and thus where their decisions affect not only their own lives and those of their immediate families but also the lives of everyone else in the country, then surely they are entitled to the responsibility of determining matters pertaining exclusively to their own well-being. In reason, it is only if they are capable of doing this that they can be presumed capable of voting on matters that affect others. The mentality underlying licensing is a mentality that holds that government officials do not derive their powers from the governed but are a race of men apart from and above the citizens, men who are intellectually and morally superior to the citizens. Such a mentality has no place in the United States. It should not exist even in Prussia or Russia.

As I have shown, in the absence of licensing legislation, a free market operates to optimize the use of human talent and to render the use of relatively scarce talent, such as that required in medicine, as economic as possible. In addition, because a free market is ruled by the profit motive and the freedom of competition, it brings about a combination of improving quality and lower cost of virtually all products and services, including medical care. It does so by making it especially profitable to introduce improvements in quality and efficiency. Competition then operates to reduce the special profits of the innovators to conform with the general, average rate of profit in the economic system. The result is that the consumers get progressively improved products at prices corresponding to progressively falling costs of production.

Because it is difficult to see this principle at work in the field of medicine today, as the result of all the cost-increasing elements that government intervention has brought about, I will give an example of it in a different field, namely, the automobile industry. Thus, the first automobile company to introduce an effective, affordable self-starter made an exceptionally high rate of profit, because it gained a substantial volume of business at the expense of its competitors. By the same token, the first automobile company to produce its cars by means of moving assembly lines or with interchangeable mass produced parts made exceptional profits because it gained a major cost advantage over its competitors while being able to sell at prices as high as its competitors. But when competition made self-starters and the use of such improved methods of production the normal standard of the industry, no company could any longer make a special profit by having them. It would have been driven out of business by massive losses if it had failed to adopt such advances. The ultimate effect of the process was simply that the consumers got better automobiles at lower prices. An additional effect of the process was that to go on making a high rate of profit, it was necessary for an automobile company to introduce further such innovations, with the result that the consumers got progressively better automobiles at progressively lower prices.

These principles apply to all industries, including medical care. It is on their foundation that until about twenty-five years ago (when the American economy was finally overwhelmed by growing government interference), the average American worker was able to obtain more and more, practically every year, in terms both of the quality and the quantity of the goods he could buy with the money he earned for his work, even as the hours in the work week progressively fell. These principles underlie the improvements in the standard of living ascribable to technological progress in a free market, which I discussed earlier. It is on exactly this foundation of the profit motive and the freedom of competition that under a free market in medical care and the financial responsibility of the individual, a progressive improvement in quality and decline in the real cost of medical care too would take place, and, indeed, did take place over most of our history.

In a free market the affordability of medical care is progressively increased not only by cost-cutting improvements that take place within the field of medical care itself, but also by cost-cutting improvements that take place throughout the rest of the economic system. The latter type of cost-cutting improvements enable people to have more and more funds available to pay for medical care, inasmuch as they reduce the funds required for the purchase of other things. Within the field of medical care itself, cost-cutting improvements take place by virtue both of labor-saving improvements and by virtue of the kind of progress in medical technology and improvements in medical equipment that make it possible for people of lesser intelligence and education to accomplish results that previously only people of greater intelligence and education could accomplish. A recent example of the first type is that of the development of fiber-optic technology and its application to surgery, which has made it possible to perform various surgical procedures on an outpatient basis rather than requiring more or less extensive hospitalization. Similarly, again and again the development of improved pharmaceuticals accomplishes major reductions in the need for hospitalizations and surgeries. Examples of the second type are the development of various forms of equipment of a kind that can be operated and whose results can be interpreted by people of far less intelligence and education than is required by physicians. Such developments, in making the time of physicians available for other things, are virtually equivalent to an increase in the supply of the scarce talents physicians possess.

Finally, in a free market, medical care is purchased by each individual patient only when and to the extent that the apparent need for medical care outweighs its cost. At every step of the way, starting with the initial decision of whether or not to seek medical care in the first place, the course of treatment is determined in the light of the cost of the treatment and the patient’s financial circumstances. The various treatments are ordered only when the patient’s need for them is deemed clearly to exceed the impact on his life of having to meet their cost. Always, the standard is the individual patient’s life: the extent of the likely impact on his life of his medical condition versus the extent of the impact on his life of his having to pay the cost of improving or safeguarding his medical condition.

It is serving the individual patient’s life that the various medical providers are focused on in a free medical market. The fact that they include in their focus the cost of the various aspects of medical care in relation to the patient’s financial resources is an essential part of adhering to the standard of what serves the life of the individual patient. It is what prevents the wasteful, uneconomic use of medical care in his individual case, that is, it is what prevents medical care from encroaching unduly on the satisfaction of the patient’s other needs, which he also must meet in order to live.

A dramatic example of how considering the cost of medical care in relation to the patient’s financial resources is part of the physician’s role of serving the patient’s life, is the case of MRI examinations. On the one hand, such examinations could apparently make possible the detection of brain tumors at an extremely early stage, and thus their having a far greater likelihood of being rendered harmless. From this perspective, it would be desirable for an MRI examination to be part of a routine annual checkup. At present, however, the cost of such an examination is approximately $1,000. Thus, whether or not an MRI examination as part of a routine annual checkup can in fact be said to promote a patient’s life in any given individual case, can only be determined on the basis of a knowledge of the patient’s financial resources. If he earns an income of a million dollars a year, say, then most likely such an examination should be part of his routine annual checkup. The alternative goods and services that he has to forgo to have the funds available to pay for it represent only one one-thousandth of his very considerable income, and his remaining income will still allow him to provide to a very great extent for the satisfaction of all of his various wants. In his case, the alternative goods or services he must forgo are perhaps merely the difference between a first-class seat and a business-class seat on one of his plane trips, or substituting a few days at a very luxurious resort for a few days at an extremely luxurious resort. By giving up such relatively modest alternatives, he is in a position greatly to decrease the likelihood of his ever dying from a brain tumor. Even though that likelihood is extremely small in the absence of evidence to suggest that he actually has such a tumor, such an individual probably should have a regular MRI examination. In contrast, if the annual income of an individual were only $10,000, then it would be nothing less than insanity for him to have routine annual MRIs. In his case, the meaning of such a choice might be that he would have to go hungry through the year in order to avoid what is actually a very minor risk.

Because of the consideration of cost in the individual case, it is impossible in a free market for a runaway increase in expenditures for medical care ever to take place. That, as I have shown, is strictly the result of government intervention in the medical market, specifically, the collectivization of medical costs.

In a free market the cost of medical care to the individual does not limit his ability to have essential medical care to nearly the same extent as it does his ability to have wasteful or uneconomic medical care. In large part this is because physicians and hospitals are entirely free to practice price discrimination – that is, to charge lower fees to poorer, lower-income patients than to wealthier, higher-income patients for the same services or for services that do not differ nearly to the same extent as the fees charged. This practice, and the extent of the difference in fees and in service provided, is essentially comparable to that of today’s airlines and to the difference in charges and service for the various classes of airline passengers. It is to the financial self-interest of free-market providers of medical care to practice price discrimination for the same reason that it is to the financial self-interest of the airlines to do so, namely, in order to be able to reach a wider market. The lower fees serve to make essential medical care available, but are high enough to prevent the wasteful, uneconomic use of medical care.

In addition, in a fully free market – that is, one without licensing legislation – medical care would almost certainly be offered by a broad range of providers catering to different needs of the market, just as today restaurants and clothing retailers range from McDonalds and Walmart at one end to Michelin star-rated type restaurants and the fanciest Fifth Avenue and Rodeo Drive boutiques at the other. To a great extent, the medical needs of poorer people could be adequately served by men and women who presently must practice merely as nurses, pharmacists, or paramedics. Today, the only source of medical care for such people is licensed physicians. The situation is analogous to requiring that a poor person who would be happy to buy a hamburger at McDonalds and can afford to do so, buy his hamburger at a much more expensive restaurant, that he cannot afford.

Of course, in a free market, there would be room for medical insurance to deal with catastrophic illnesses. Such insurance would impose an annual deductible well in excess of all routine medical expenses, and possibly a significant copayment over and above that, such as 5 or 10 percent of all medical charges, or all medical charges in excess of some predefined substantial limit. Insurance of this type would not be a system of collectivized payment for medical expenses, as is today’s medical insurance. It would leave each individual with strong incentives to control his medical costs. As a result, it would not operate progressively to drive up medical expenses. Thus it would result in sharply lower charges to insurance companies and in correspondingly lower insurance premiums than the present type of medical insurance. Since in a free market the government would not be able to use taxation to discriminate in favor of employer-financed medical insurance, as it now does, thereby creating the illusion in the minds of employees that medical care is free, such insurance would lose out in competition to the kind of medical insurance I have described. This is because it would be much more expensive and buyers would have to pay for it either with money directly out of their own pockets or at the expense of equivalent additional take-home pay. Beyond medical insurance, there would be private charity for patients otherwise unable to pay for essential medical services.

Thus, the choice is between the ever improving, ever less costly and more accessible medical care of a free market, and the Clinton plan’s system of stagnation, shortages, and rationing. The choice is between free-market medical care, which is centered entirely on the life of the individual patient and the independent intelligence and thinking of his physician in the service of that life, and government-controlled medical care. Government-controlled medical care is centered on the requirements of alleged national economic priorities and the so-called planning of government officials designed to improve the meeting of those alleged priorities. Government-controlled medical care entails the sacrifice of the judgment of physicians and the life of the individual patient to such illusory, absurd criteria. As such, it is a contradiction of the very concept of medical care. And thus, for anyone who values the life of the individual human being, there can actually be only one choice: the free market; and only one question: How can a free market in medical care be achieved?

5. Toward a Free Market in Medical Care

The simplest, most obvious method of achieving a free market in medical care would be at one stroke to abolish all government intervention that violates a free market in medical care: namely, all medical-licensing legislation; all government interference that promotes the present, collectivist system of private medical insurance; the Medicare and Medicaid programs; and all other government intervention in the economic system that violates the freedom of contract between patient and physician or otherwise impairs the ability of patients to gain access to medical care, notably, all regulation that increases the cost of medical care. Such a sweeping, radical solution is what is in fact required to establish a fully free market in medical care, and is precisely what should be aimed at and ultimately accomplished.

Unfortunately, it is rarely if ever the case that such a sweeping program of change can be adopted all at once. Thus, a less radical, more gradual process of reform must be devised. Here, the radical, sweeping program of reform still plays an essential role: it serves as the standard for all lesser measures of reform operating in the direction of the establishment of a free market in medical care. The degree of movement in its direction is the measure of political progress in the field of medical care.

In the present circumstances, the focus of free-market reform in medical care must be on the plight of the uninsured. Namely, what specific steps toward a free market in medical care could be taken in the near future that would substantially reduce the cost of medical care to uninsured individuals, or to individuals possessing medical insurance but who have not yet met their deductible. (From now on for the sake of brevity, when I speak of the uninsured, I should be understood as also including everyone whose insurance does not yet apply because their deductible has not yet been met.) If such reform could be successfully implemented and medical care thereby made substantially more affordable, the present, collectivist system of private medical insurance might effectively be ended, or at the very least greatly reduced in its significance.

To be successful, such reform must approach the problem of bringing down medical costs from two sides: on the one side, the reduction and ultimate total elimination of the artificial increase in demand for medical care fostered by the alleged need-based right to medical care and the collectivization of costs to pay for it. On the other side, the reduction and ultimate total elimination of the artificial increase in medical costs caused both by the alleged need-based right to medical care and by medical licensing. Everything that rolls back the artificial increase in demand for medical care will, of course, operate to reduce medical costs, but there also needs to be more direct action as well. This is necessary both in order to speed up the process of cost reduction and insofar as the artificial increase in demand for medical care has led to increased government intervention into medical care and to irrational standards of medical malpractice. These latter will not go away just by means of reducing the artificial increase in demand for medical care. Nor will medical licensing and its contribution to the high cost of medical care.

Approaching the matter from both sides will make possible a process of mutually self-reinforcing cumulative success in bringing down medical costs. That is, not only will the rollback of the artificial increase in the demand for medical care bring down the cost of medical care, but everything that serves directly to bring down the cost of medical care will make such rollback all the more likely. This is because it will make individuals less afraid to be without medical insurance or to have medical insurance with higher deductibles. Thus, whatever brings down the cost of medical care has the potential to contribute to the further reduction in the cost of medical care.

The first thing that needs to be done to roll back the artificial increase in demand for medical care is to make a relatively minor reform in the income-tax system. Namely, that employers should be free to offer their employees a choice between employer-financed medical insurance or an equivalent amount of tax free income, up to a limit corresponding roughly to the present average cost of such insurance, such as $5,000 per year. (Whatever the precise number chosen, it should, of course, be indexed for any rise in the general consumer price level from one year to the next.) This would make employees realize that they were responsible for the cost of their own medical care, even if the employer continued to pay insurance premiums on their behalf. This is because the individual employee would know that he could have his share of the money his employer paid on his behalf, in his own pocket if he wished.

The result of this arrangement would be that employees would have an incentive either to have no medical insurance or a medical insurance policy with a high deductible, significantly in excess of all normal, routine medical expenses, that is, a deductible such as two or three thousand dollars per year. Policies of this kind, carrying very high limits of coverage, are available at a cost of about $2,000 per year for a family. (See John C. Goodman and Gerald L. Musgrave, abridged, paperback edition, Patient Power [Washington, D.C.: Cato Institute, 1994], pp. 89–90.) This is much less expensive than today’s typical type of coverage. It is noteworthy that with $5,000 of tax-free income, the purchase of such a policy would enable the individual worker to have an amount of tax-free take-home income left over equal to the full deductible on the policy, should he need it for medical expenses.

Even though much less expensive, at present there is insufficient incentive to purchase this type of insurance policy, because if an employer did so and passed the savings along to his employees, the gain to the employees would come only after paying taxes on the amount of the cost savings. In other words, present-day tax policy literally taxes savings in the cost of medical insurance. The elimination of this tax would greatly promote the purchase of the more economical, high-deductible medical insurance policies. The resulting reduction in the demand for medical care, based on the fact that individuals would have to meet all of their routine medical expenses out of their own pocket, would make a substantial contribution toward reducing the cost of medical care, one that would become greater as time went on.

The second thing that needs to be done to roll back the artificial increase in demand for medical care is to require that unless they can demonstrate a lack of means, individuals covered by Medicare be required to pay a substantial deductible before their coverage under the program begins and then to make a continuing copayment of a significant percentage of all costs beyond some maximum limit. I do not think that retired individuals in a position to pay for medical care can legitimately claim that the very small percentage of their incomes which they have paid up to now as Medicare taxes, namely, 1.45 percent for the last few years (2.9 percent when employer contributions are counted), entitles them to free medical care for the rest of their lives. It would be much less expensive for the government simply to refund such tax payments to them than to meet such unfounded claims.

Ultimately, as I have said, both the Medicare and the Medicaid programs should be phased out entirely. But I will only say very little more on this subject here, because the two programs are integrally connected with the social security and welfare systems respectively. As a result, their phaseout can be appropriately dealt with only as part of a wider program of reform which would include the phaseout of those systems as such in favor of a free market. (In a free market, of course, people live by supporting themselves and provide for their old age by means of personal saving.)

Here I will limit myself to suggesting that upon reaching the age of sixty-five, everyone should be given the choice of permanently signing away all of his acquired legal rights both to Medicare and to social security, in exchange for exemption for the remainder of his life from personal income taxes on whatever income he earns as wages or salaries or from self-employment. The interest and dividend income on whatever the individual saves from such tax-exempt income should likewise be tax-exempt, and whatever he bequeaths to his heirs from savings made out of his tax-exempt income should be exempt from estate and gift taxes. This would be an extremely powerful set of incentives to individuals to give up their legal right to collect from the Medicare and social security programs. It would make the years beyond age sixty-five into truly "golden years" – years of the greatest personal freedom in one’s lifetime as conditions now stand.

Furthermore, along with substantially reducing the government’s expenditures under these programs, it would probably operate significantly to increase the government’s overall tax revenues. This would be the case because insofar as people were led to continue to work beyond age sixty-five who otherwise would not have done so, the government would not lose any tax revenue by making their incomes tax-exempt, inasmuch as they would not have had any income to tax in the first place. (No one should make the mistake of thinking that the taxation of social security payments is a source of tax revenue to the government. It is merely a modest reduction in its expenditures.) The great bulk of the incomes earned by people over the age of sixty-five would be new and additional incomes that otherwise would not have existed. The earning and spending of these incomes would generate significant additional revenues for the government in the form of excise, sales, and property taxes, which would continue to be applicable. Of course, to the extent that they were saved and invested, they would also contribute to the formation of new and additional capital, which the American economy urgently needs, and thereby contribute to the further increase in production and in the government’s tax revenues.

As the supporters of the Clinton plan are so fond of saying, the plight of the uninsured constitutes a medical emergency. Now, an emergency justifies unusual measures, the necessity of which even political moderates can appreciate. Thus, as an important part of the second side from which the plight of the uninsured must be solved, it is certainly reasonable to ask that medical licensing laws be liberalized – nothing so extreme, mind you, as their outright abolition, but merely their significant liberalization. Thus, let the government grant to every licensed physician, as part of his powers as licensee, the power to extend the benefit of his license. That is, let every licensed physician have the right to select, say, up to six other individuals whom he will train and supervise and to whom he can delegate as much or as little of his permissible powers as a licensed physician as he thinks appropriate. Let these individuals be known perhaps as "associate physicians." To provide a feature that many will probably find a comforting safeguard, let the physician’s power of selection be limited for the time being to individuals who have already attained some significant but lesser status of endorsement by the government, such as registered nurse, licensed pharmacist, or certified paramedic. Thus, for every physician, up to six such individuals might fairly soon practice substantially as physicians when it came to serving the uninsured.

Furthermore, exactly the same procedure could be followed with respect to those higher in the medical hierarchy than ordinary physicians. Thus, for example, every board-certified surgeon could be given the power to draw from the ranks of ordinary physicians up to six individuals whom he could train and supervise, and who could thereafter practice as "associate surgeons," performing as much or as little of the work allowed normally allowed to the full surgeon as the latter deemed appropriate. (The presently licensed physicians and board-certified surgeons should be free to arrange formal or informal courses of instruction for their associates – in effect, to launch medical schools. Such instruction should take place entirely under the powers conferred by their existing licenses or certification and require absolutely no further government sanction or certification of any kind.)

Such liberalization of the licensing laws would make possible a great increase in the number of medical practitioners. It would thus substantially lower the scale of medical fees for uninsured patients, particularly at its lower end, and thereby make medical care correspondingly more affordable and more accessible to the uninsured. At the same time, it would increase the incomes not only of those who rose from a lower to a higher medical rank, but also the incomes of those of higher medical rank who made best use of the work of their associates.

It should be realized, furthermore, that the incomes of those who already had been practicing in the higher ranks would not fall to the same extent as the fall in the lower limit of medical fees, even if many or indeed all of their present patients came to utilize the services of the new associate physicians on occasion. This is because the fall in the lower limit of medical fees would be largely a decline into territory previously not served, or not very adequately served. Those in the higher ranks would continue to have important advantages over those in the lower ranks and continue to command a substantial premium in income over them. The situation would be analogous to the effect of suddenly allowing the competition of McDonalds-type restaurants against long-established, comparatively upscale restaurants which had previously been legally protected from such competition. The newly allowed McDonalds-type restaurants would draw some business from the older restaurants, but their main clientele would come from a segment of the market not previously served or not served very adequately. Thus, the prices charged by the established restaurants would not decline to a point anywhere near the prices charged by the McDonalds-type restaurants. In the same way, the rates of today’s established physicians would not decline to anywhere near the rates charged by the new, low-end competitors.

In terms of the medical care that people could obtain in daily life, the licensing liberalization would mean that for such ailments as the flu, a person could simply walk into a pharmacy, and if the pharmacist were an associate physician, he could get his examination and prescription on the spot, at a minimal cost compared with what he must pay today if he visits a doctor’s office. He could probably have a broken arm or a broken leg set and put in a proper cast by an associate physician who otherwise would have been confined to the role of registered nurse or paramedic. To the extent that such low-cost alternatives to full physicians existed and did bring down the fees of full physicians, then, when the need arose and an associate physician judged that a referral to a full physician or a specialist was required, the lower fees of these latter would serve to make their services more affordable as well.

Liberalization of licensing laws, combined with other critical reforms pertaining to the freedom of contract and the rational right to medical care, has even greater potential to bring down costs for the uninsured when it comes to hospital stays. As I have indicated, today’s $1,000 or even $1,500 per day hospital rates are essentially an outlandish hotel-room rate with meals, routine nursing service, medications, and hospital supplies included, but virtually nothing else. In most places in the United States, a first-class hotel room on a double-occupancy basis can be had for less than $75 per person per day, often for substantially less. Food that is far better than most hospital food can certainly be had for less than $50 a day per person. Taking the current hourly rate for a registered nurse as $25, and allowing for round-the-clock nursing service at the very liberal ratio of one nurse for every three patients, the daily nursing cost amounts to $200 per day per patient. Allowing as much as another $75 per day for medications and equipment rentals, and yet a further $100 a day per patient to cover the cost of all kinds of standby equipment and personnel, the total cost of the equivalent of a semi-private hospital room works out to be in the neighborhood of $500 per day at the utmost. With some efforts at economy, this cost could undoubtedly be reduced without too great difficulty to half as much, or just $250 per day.

I do not mean to suggest that today’s hospitals are making profits equal to the difference between their present exorbitant rates and costs of just $250 per day or even $500 per day. Actually, they are not. Most are doing little better than breaking even; many are even losing money. This is because piled on top of their costs that are actually necessary, is a vastly greater amount of unnecessary, artificial costs of the kind imposed both by the perverted notion of the need-based right to medical care and the collectivization of costs to pay for it, and by sundry forms of government regulation based on other factors. Here is the overhead imposed by the wasteful hospital equipment purchases that I explained earlier, the overhead imposed by cost shifting from the Medicaid program and more recently from the Medicare program and from private insurance companies, and the further overhead imposed by the vast administrative costs resulting from the mountains of paperwork generated by the system. Here also are the costs imposed by having to meet the requirements, frequently as expensive as they are bizarre, of government agencies such as the EPA and OSHA. Here also are such costs as those imposed by the wage scales and featherbedding practices of hospital labor unions, which in turn rest on the support of the NLRB, and which, in the case of today’s hospitals, have operated largely in the face of lack of buyer resistance. All in all, today’s $1,000 to $1,500 a day hospital rates rest on a foundation of $750 to $1,250 a day in unnecessary costs in addition to approximately $250 a day in necessary costs.

The essential requirements for bringing hospital rates down are making it possible for hospitals to escape the unnecessary costs and then to turn loose the profit motive and the freedom of competition. This combination will then proceed as rapidly as possible to bring hospital rates down to the point of conforming to the necessary costs, together with no more profit than is required to provide the going, competitive rate of profit in the economic system. Indeed, no sooner would this result be achieved than the profit motive and the freedom of competition would set to work finding ways progressively to reduce the necessary costs and thus further and progressively to reduce hospital rates.

How can the artificial hospital costs be escaped?

Here the necessity of freedom of contract and the actual, rational right to medical care come to the forefront, in that both the Congress and the courts must recognize the right of the uninsured individual and any hospital he enters, to deal with one another on terms mutually agreeable to them alone and subject to the interference of no one. The Congress must recognize that its legislation must support this right, not infringe it. The courts must recognize that their role is to enforce such contracts according to the terms entered into by the parties involved, not according to the terms of anyone else. Thus uninsured individuals and hospitals must have the right, to be respected and enforced, to exempt themselves from all government regulation and interference of any kind to which they do not wish to be subject.

This means that hospitals and the consenting uninsured patients who enter them must be acknowledged to have the right to exempt themselves, for example, from all the rules and regulations of the Department of Health and Human Services, the Social Security Administration, the NLRB, EPA, OSHA, and all of their state and local counterparts. It also means that hospitals and the uninsured patients who enter them must have the right to agree to mutually binding standards of malpractice other than those which guide today’s courts.

If such total, blanket self-exemption from regulation seems too extreme, then perhaps a more moderate, middle-of-the-road standard might be applied for the time being. For example, the standard could be adopted that by mutual consent hospitals and uninsured patients could voluntarily exempt themselves from all such regulation that has grown up since some given date, such as 1940 or, better, 1930, say. The principle here is that government regulation has become a malignant cancer. Nothing but radical surgery will do. Before a certain date, such as 1930, or possibly 1940, the situation, even with some amount of government interference, was not intolerable. Since that date, it has grown progressively more intolerable. (Inasmuch as the same kind of progressively deteriorating situation has existed with respect to malpractice standards, the same type of radical surgery could be applied to laws and judicial precedent concerning malpractice.)

Under such freedom of contract, if any licensed physician, or two or three licensed physicians together, were recognized as possessing all the legal qualifications required to start and run a hospital, then, in a very short time, today’s outlandish hospital rates would be no more. Their fall would be rapid indeed, if existing hospitals, currently serving insured patients, had the right to practice price discrimination in favor of uninsured patients corresponding to the newly won lower costs of serving uninsured patients.

Such a state of affairs, in which medical care would be far more affordable for uninsured individuals, combined with the income-tax provision that employers could offer their individual employees an equivalent sum of tax-free take-home income in place of costly medical insurance, would probably spell the complete end of the present system of collectivist medical insurance. For medical care would be affordable without insurance, by virtually everyone, in all but catastrophic situations.

In order to carry out the kind of reforms I have described, a simple blanket act of Congress announcing a standard concerning exemption from regulation in terms of a broad principle may be inadequate. It may be necessary to repeal hundreds or even thousands of specific federal and state regulations and numerous specific federal and state laws, or at least to amend them so as to exempt medical care from their operation. To this end, Congress could empower one last regulatory-type agency: the Deregulation Agency. Its powers would supersede those of any regulatory agency and the acts of state legislatures (as do the powers of today’s regulatory agencies). In sharpest contrast to all regulatory agencies, its powers would be limited to the repeal of existing regulations (including the narrowing of their scope in conditions in which considerations of political expediency prevented their total repeal). It would have no power to enact any new regulation.

The initial mandate of this agency would be to ferret out all regulations of any federal or state government agency or department, and all state and local laws, that violated the freedom of contract with respect to medical care – that is, the rational right to medical care – and to render them null and void insofar as this was the case, either by virtue of their outright repeal or necessary amendment. As far as existing federal legislation is concerned, its job would be to prepare an appropriate act or acts of repeal or amendment for submission to Congress. The enabling legislation for the agency should require it, within a fairly short period of time, such as two years, to reduce the cost of government interference in medicine by a minimum of 75 percent, or, if this is impossible because of existing federal laws, to have prepared the necessary legislation of repeal or amendment that would do so.

Such must be the politics of the future – if the United States is to have a future. Such can be and must be the politics of the future, even if the Clinton plan is enacted into law, as it well may be. In that case, the fight for the freedom of medical care will shift to somewhat different ground, though the long-term goal will remain exactly the same.

In that case, beginning in the very same session of Congress, and repeated in every session thereafter until its enactment is finally achieved, legislation must be introduced calling for the unrestricted right to practice medicine outside the auspices of government control. For the time being, government medicine might then be left more or less untouched, except to educate people to its disasters and cost. Apart from that, it would temporarily be left to whoever had the mentality of a serf and was satisfied with such medical care. But for those who value their lives and their freedom, the fight for the freedom of medicine would continue and never be abandoned. And when it was secured for those willing to pay for medical care, the fight would begin on behalf of all who were unwilling to act as involuntary guardians of others and pay for their medical care.

If anything in the world is not inevitable, recent events have shown that it is socialism and tyranny. Whatever obscurity still surrounds this point is the result of the failure to rout socialism in the name of explicitly formulated rational principles. The rejection of the Clinton plan in favor of an explicit free-market solution to the medical crisis provides the opportunity for just such a rout. If it were accomplished, the character of political debate in the United States could be altered in favor of reason and capitalism for generations to come.

The health and the freedom of the American people now and in the future demand a new politics of progress: progress away from government interference and in the direction of individualism and capitalism. Let such progress begin here and now, with a fight for the right to the freedom of medical care.

Postscript: As the second printing of this pamphlet goes to press, the Clinton plan has been defeated. As a result, the supporters of socialized medicine now appear to be turning to a more explicit form of socialized medicine, namely, the so-called single-payer plan, under which the government, state or federal, becomes the payer of all medical bills. (A version of the single-payer plan is on the ballot in the state of California as a voter initiative.)

It should be obvious that the single-payer plan is nothing but Medicare or Medicaid – for everyone, and that it will be accompanied by the same kinds of catastrophic failure as those alleged remedies for the destructive consequences of still earlier government intervention in medical care. At whichever level of government it is applied, the single-payer plan will mean that government officials decide what medical care is available and to which categories of citizens. Just as under the Clinton plan, the individual citizen will be deprived of the vital right to act to save his life by buying the best medical care he can obtain from willing providers.

The logic of the situation implies that the citizen will be deprived of this right not only with respect to the taxes he is forced to pay to support the plan, but with respect even to funds he is prepared to pay over and above his taxes, for the purpose of obtaining medical care. This is because the government’s purpose in enacting the plan is to contain costs. As a result, the government cannot allow the competition of a quasi-free segment of the market, fueled by today’s collectivization of medical costs, to go on driving up medical costs. Thus, as in Canada, it will be driven to prohibit the existence of any quasi-free segment of the market. People will have to take the medical care it decides they can have, period.

Of course, if the system is adopted in only one or a few states, many of the citizens of those states will still have the ability to cross over into neighboring states to obtain medical care, just as many Canadians today cross over into the United States to obtain medical care. By the same token, many of the better physicians will be driven to move their practice to states that remain relatively free.

In addition to having to pay far more for medical care, by virtue of having both to pay higher taxes and to go to a different state to obtain medical care, the residents of states that enact the single-payer plan will also suffer because the costs of doing business in their state will be dramatically increased in comparison with the costs of doing business in states that do not enact the single-payer plan. This will be the result of the imposition of sharply higher state taxes on business to help pay for the plan. These taxes will mean that it is less profitable to do business in that state. Thus, fewer new businesses will be started there; more existing businesses will relocate in other states. The result will be higher unemployment in that state. The only way that these consequences could be avoided would be if the whole cost of the plan were financed by taxes coming out of the pocket of the average wage or salary earner in the state, which would further reduce his chances of obtaining quality medical care.

$95 $80

Applied at the state level, the single-payer plan is a formula for the destruction both of medical care in that state and of the general economy of that state. Applied at the federal level, the single-payer plan is a formula for the destruction of medical care in the whole country, as well as representing a further major blow to the economic system of the country.

The right principle to follow in answer to the single-payer plan and any and all other efforts to carry socialized medicine any further in the United States is that the best defense is an offense. In this case, that means going on the offensive for economic freedom in medical care, along the lines spelled out in Section 5 of this pamphlet.

George Reisman, Ph.D., is Pepperdine University Professor Emeritus of Economics and the author of Capitalism: A Treatise on Economics (Ottawa, Illinois: Jameson Books, 1996). His web site is www.capitalism.net. His blog is at www.georgereisman.com/blog/. Send him mail. (A PDF replica of the complete book Capitalism: A Treatise on Economics can be downloaded to the reader’s hard drive simply by clicking on the book’s title, immediately preceding, and then saving the file when it appears on the screen. ) See his article archives. Comment on the blog.

This article originally appeared as a pamphlet published by The Jefferson School of Philosophy, Economics and Psychology. Copyright © 2009, 1994, by George Reisman. The author would like to acknowledge the valuable suggestions and criticisms of various drafts of this essay that have been made by his wife, Dr. Edith Packer; his editor, Mr. Charles Burger; and by four practicing physicians: Beth Haynes, M.D., Peter LePort, M.D., Christina Rizza, M.D., and James Vawter, M.D.

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Iron Mountain A Hoax or Betrayal?
By: Paula Demers

http://www.worldnewsstand.net/today/articles/ironmountain.htm

In 1961, the Kennedy administration ordered a "Top Secret" study to determine what problems the United States would face if the world moved from an era of war to a golden age of peace. In other words, how to bring America into the New World Order. By 1963 the selection of the specialist had been made. This study group consisted of 15 experts in various academic disciplines who were selected for their expertise in their various fields. The first and last meetings were in an underground nuclear survival retreat called Iron Mountain.
In the same year that this "Top Secret" study was called, 1961, The Department of State put out a publication (#7277) called "Freedom From War, The United States Program for a General and Complete Disarmament in a Peaceful World". This publication describes a three step program to disarm the American military, shut down bases and have one military under the United Nations. This "military" would be the world wide police force to be used as "peace keepers" throughout the world. The plan would include that "all weapons of mass destruction" be eliminated with the exception of "those required for a United Nations Peace Force" (page 12 paragraph one). In order to "keep the peace, all states will reaffirm their obligations under the UN Charter to refrain from the threat of use of any type armed force" (page 16, Paragraph eight) To support the UN Charter, the average citizen will need to be disarmed; so they cannot defend themselves against these "peace keepers". You don’t have to watch much news to see that today, the UN forces are used as "peace keepers" throughout the world, disarming people so they can’t defend themselves against oppressive governments. To quote Sarah Brady, Chair of Handguncontrol, Inc. "Our Task of creating a socialist America can only succeed when those who would resist us have been totally disarmed."
I also want to point out the interesting things that happened in the mid 1960′s: The protests against the war in Vietnam. The protests against Nuclear Arms. The protests for arms reduction……Much of these protests were done by college students. Many who graduated and became the doctors, lawyers, people in politics, and even the President for today.
In 1963, the same year as the selection of specialists for this "Top Secret" study, President John F. Kennedy made an astounding statement. On November 13, while speaking at Columbus University, Pres. Kennedy stated, "The high office of the President of the United States of America has been used to foment a plot to destroy America’s freedom, and before I leave office, I must inform the citizens of their plight! Ten days later, President John F. Kennedy was shot and killed.
The study was completed in 1966. President Johnson gave the order that the report was never to be released, due to the nature of the conclusions reached. The purpose of this Report was to see what it would take to bring the United States into a New World Order. The "experts" decided that the American people were not intelligent enough to understand what "big brother" had decided for them; and what "big brother" would need to do to accomplish what was decided for them. If the truth came out too soon, the American people would be able to stop it.
To quote directly from the cover letter of this report: (paragraph three) "Because of the unusual circumstances surrounding the establishment of this Group, and in view of the nature of its finding, we do not recommend that this Report be released for publication…such actions would not be in the PUBLIC INTEREST (emphasis mine)..a lay reader, unexposed to the exigencies of higher political or military responsibility, will misconstrue the purpose of this project, and the intent… We urge that the circulation of the Report be closely restricted to those who’s responsibilities require that they be apprised of its contents…" Those who responsibilities require they know? Would this be the people who will be working to bring us into a New world Order?
One man involved in the study elected to release it to the general public. He did it at great risk to himself using the name John Doe. Mr. Do must have believed the American people were smart enough to decide for themselves if they wanted to loose their freedom to a "golden age of peace". After John Doe released the information, the Establishment renounced it saying it was a hoax. There are not many copies of this Report left. Some large libraries have copies and it would be worth the effort to check it out. This in itself would be proof it is not a hoax.
There are very interesting terms used and repeated throughout the report. Some of these include "general condition of peace", "functions of war", "change social structure", "problems of peace", "transition of world peace", replacing the "function of war", "saving the species" (man), "disarmament transition", "social control", "selective population control", "gross population control" and "loss of national sovereignty".
The stated purpose of this Report (taken from the first paragraph of the cover letter) is:
to consider the problems involved in the contingency of a transition to a general condition of peace, and
To recommend procedures for dealing with this contingency. " We will do our best to capture the basic message in this report.
This 34 page report basically deals with the "functions of War" and how to replace those "functions" with other options. So there can be peace and the "species" (man) can survive.
THE IRON MOUNTAIN REPORT
The introduction of this Report shows some interesting observations this group came up with during their 2 1/2 year study. If there came a "condition of world peace" (paragraph three) it would change the social structures of all the nations of the world. There is nothing that has happened to compare with the change that would occur in such an instance. They point out that there would be consequences to peace. Not just the economy, but every other aspect of life would be touched also. It would touch the "political, sociological, cultural, and ecological" aspects. The reason they included these aspects in their study is that the world (at that time) was totally unprepared to cover all the demands that would come in these areas in such a situation of peace. They conclude that at the end of the report they give their recommendations for what they believe to be a "practical and necessary course of action." (paragraph six)
These 15 experts set you straight in the first section that they are doing to be totally objective in their study. (Section one, paragraph five) They made a "continuously self-conscious effort" to keep the values of "good" and "bad". They admit that it wasn’t easy, but as far as they could tell, it had never been done before. The previous studies for peace had taken certain things into consideration:"…the importance of human life, the superiority of democratic institutions, the greatest ‘good’ for the greatest number, the ‘dignity’ of the individual, the desirability of maximum healthier and longevity,…." These experts did not. Instead they attempted to "….apply the standards of physical science…." and go on to quote Whitehead who said, "…ignores all judgments of value; for instance, all esthetics and moral judgments."
In other words, people the idea of human rights, and the value of human life are not at all taken into consideration in the putting together of the Report. They took their assignment, and decided how they could take care of all the problems without considering the people involved. In this report, as you will see, human beings are being brought down to the level of herds of animals.
Section four is interesting. (War and Peace as Social Systems). They point out that wars are not "caused" because of international conflicts of interest. (paragraph seven). They further comment that "…war-making, active or contemplated, is a matter of life and death on the greatest scale subject to social control…" In paragraph six of this same section, they comment that the "threats" against the "national interest" are created or accelerated to "meet the changing needs of the war system". This will be in more detail in the next section, where they discuss the "Functions of War". (Section five) for each section, along with their "Substitutes for the Functions of War (Section six). We will include booth the "functions" and the "substitutes" under each heading.
FUNCTION OF WAR / SUBSTITUTES FOR THE FUNCTIONS OF WAR
They go into great detail on the "Functions of War" (Section five) and the "Substitutes for the Functions of War" (Section six). The areas covered are: economic, political, sociological, ecological, cultural and scientific. These areas are all affected by the "functions of war" so they will have to find "substitutes for the functions of war" in order to have peace. see: Silent Weapons For a Quiet War
ECONOMIC
One "function of war" is that it uses organized violence to defend or advance "national interest". They believe it is necessary for a military establishment to "create a need for it’s unique powers" (Section five, paragraph two)
Another major "function of war" is that it produces waste. This waste is a means to control surpluses. It also produces jobs and industrial advancement. War, basically, stimulates the economy. Paragraph eight states, "It is, and has been the essential economic stabilizer of modern societies."
In section six, they come up with options that can replace war. They have two criteria: they must be wasteful, and must operate outside the normal supply and demand system. They make a list of social welfare programs, such as heath and housing. But they comment that there is a weakness in changing the money form the military spending to social-welfare. Unless it was run like the military , "subject to arbitrary control". (paragraph 12) This control would com in the form of building (public housing–medical centers) that can be accelerated or stopped, depending on what it would take to create a stable economy. Another option would be a series of "giant space research programs". (paragraph 13)
POLITICAL
One "function of war" in the political sense, is that war is "virtually synonymous with nationhood" (paragraph two) War has been essential for nations to exist independently. So, with "peace", nations lose their national sovereignty.
So a "substitute for the function of war" politically would have to come up with something that would be compatible with no national sovereignty. Nations can still exist in the "administrative sense" (paragraph two). But there would have to be institutions, such as a "World Court or a United Nations" that had the real authority.
One of the things considered was generating a type of space enemy. They acknowledge that, "…most ambitious and unrealistic space project cannot of itself generate a believable eternal menace…."(paragraph seven) Even the "flying saucer instances" were not encouraging enough to be used to unite "….mankind against the danger of destruction by ‘creatures’ from other planets…."
An effective substitute for war, would require "alternate enemies". (paragraph seven) They go on to say that a "gross pollution of the environment" could eventually replace the mass destruction by nuclear weapons, as a "threat to the survival of the species", (meaning humans). In paragraph eight, they go on to say that "…Poisoning of the air, and the principles sources of food and water supply, is already well advanced,". This, at first glance, would seem to be promising. But they go on to say, "…by present indications it will be a generation to a generation and a half before environmental pollution, however severe, will be sufficiently menacing, on a global scale….." In other words, pollution can offer a solution to get rid of the population that nuclear war does; and it’s already being done, but it would take a generation to a generation and a half to accomplish the desired goal. They go on to explain that the rate of population could be "increased selectively". (paragraph nine) If there was a "modifying of existing programs" that deter the pollution, it could speed up the process to make this solution credible sooner.
Paragraph ten stresses the fact that even though some of the alternate enemies mentioned may seem unlikely, they are sure that one must be found. It must be of "…credible quality and magnitude, if a transition to peace is ever to come without social disintegration. Plain English? There must be some type of "disaster" found that will unite the nations to come under one roof.
SOCIOLOGICAL
The "function of war" in this section is, in the author of this report’s opinion, an insult to human intelligence. In the third paragraph, they discuss the fact that military service has a "patriotic" priority in society. This as an idea needs to be "maintained for its own sake". It can be used as a "…control device over the hostile, nihilistic, and potential unsettling elements of society in transition, (meaning, though they don’t use the term, people) the draft can again be defended, and quite convincingly, as a ‘military’ necessity." They go on in the fourth paragraph that the "…armed forces in every civilization have provided….state-supported haven …..for the ‘unemployable’…" They go on to comment that a replacement for this "function of war" must "involve a real risk of personal destruction…" If the substitute doesn’t provide a believable life and death threat, it will not serve the "…socially organizing function of war." (paragraph 12)
In the "substitution for the function of war" there were two critical classifications. In order for there to be a stable society in a world of peace, the following tow criteria would be needed:
an effective substitute for military institutions that neutralize destabilizing social elements" (which means neutralize anti-social people) This would be essential for "social control", and
a credible motivational surrogate for war that can insure social cohesiveness", which would be the basic way to adapt human drives to what the society needs. (paragraph one)
One possible solution to control "potential enemies of society" (paragraph six) would be to reintroduce slavery. They asserted that the "traditional association of slavery" should not blind us to "..its adaptability to advanced forms of social organization…" They acknowledge that the "Western moral and economic values" do not line up with slavery. But it is possible to develop a "….sophisticated form of slavery…" that may "..be an absolute prerequisite for social control in a world of peace…" They maintain that the first "logical" step would be the "adoption of some form of ‘universal’ military service."
In paragraph seven, they comment that the "’alternate enemy’ must imply a more immediate, tangible, and indirectly felt threat of destruction." This enemy must justify taking and paying a "blood price" in the wide area of human concern. They go on into paragraph eight to say, "…inconsiderable actual sacrifice of life; the construction of an up-to-date mythological or religious structure for this purpose would present difficulties in our era,…certainly be considered." They go on to discuss the development of "blood games" (paragraph nine) to effectively control individual aggressive impulses. To be realistic, a ritual of this type might be "socialized" like the Spanish Inquisition and the "witch trials of other periods". The purposes would be for "social purification", and "State security". Though this type of thing is doubtful, it is "…considerable less fanciful than the wishful notion of many peace planners that a lasting condition of peace can be brought about without the most painstaking examination of every possible surrogate for the essential functions of war." They considered this, "in a sense" the quest for "William Jame’s ‘moral equivalent of war’."
ECOLOGICAL
This "function of war" is put in a way very degrading to man. It starts out in paragraph one with, "Man, like all other animals". Man is brought down to the level of beasts. They go on to comment that, "To forestall the inevitable historical cycles of inadequate food supply, post- Neolithic man destroys surplus members of his own species by organized warfare." It gets better in paragraph two, where man is compared "in a limited degree" with rats. This is because they kill their own kind.
One of the "functions of war" they state, has "…served to help assure the (survival) of the human species." (paragraph three) They go on to say that in nature, it is survival of the fittest; the "inferior" disappear. With war, this function is reversed, because those who fight and die during wars, are "in general its (its meaning man) biologically stronger members." In paragraph six, they state: "Conventional methods of warfare would almost surely prove inadequate, in this event, to reduce the consuming population to a level consistent with survival of the species." Species, of course meaning man. So conventional warfare may not be able to kill enough people. They go on to say (paragraph seven) that, "The second relevant factor is the efficiency of modern methods of mass destruction. Even if their use is not required to meet a world population crisis, they offer, perhaps paradoxically, the first opportunity in the history of man to halt the regressive genetic effects of natural selection by war."
They have some interesting ideas for "substitutes for the functions of war". Since war has shortcomings as a way for "selective population control", they believe that coming up with substitutes for this function " should be comparatively simple". (paragraph one) They believe that even though war has not "been genetically progressive", it cannot be fairly faulted as a "system of gross population control to preserve the species".
They believe to have a "universal requirement" for procreation be limited to "artificial insemination "would be fully adequate substitute control for population levels". Conception and embryonic growth would take place under laboratory conditions. This type of "reproductive system" would have the advantage of "being susceptible of direct eugenic management". (Sounds like a "Brave New World" to me.) When this report was written, steps to have "total control of conception with a variant of the ubiquitous ‘pill’, via water supplies or certain essential foodstuffs, off set by a controlled ‘antidote’" was already being developed: by teams of experimental biologists in Massachusetts, Michigan, and California, Mexico and the U.S.S.R. (paragraph four)
This solution, they realize, cannot come about a substitute for war while there is still war. The reason? "…excess population is war material." (paragraph five) As long as there is even "a remote possibility of war" societies "must maintain a supportable population" even if it effects the economy.
CULTURAL AND SCIENTIFIC
The "function of war" wouldn’t make too much difference in the area of art. They do believe that it has a role "..as the fundamental determinant of culture values." (paragraph two) Right now art shows "…The exaltation of bravery, the willingness to kill and risk death in tribal warfare".
The "function of war" concerning science is a different story. What motivates the development of science on all levels.
A "substitution for the function of war" for art would simply be for art to change. It could be used as previously "in a few primitive peace-oriented system". (paragraph three) Art would be "reassigned" to "…decoration, entertainment, or ply…". it would be "entirely free of the burden of expressing the socio-moral values and conflicts of a war-oriented society…"
In science a "substitution for the function of war" could be to go into a "giant space research program" (paragraph four) They have found, if all war threats were to end tomorrow, the quest for scientific knowledge could go forward, without slowing down for "perhaps two decades". (paragraph five) There are many "unresolved" social issues that can be researched and dealt with.
OTHER
We have combined section’s five and six to show you that what the "experts" said the "functions of war" are in our society along with some of their "substitutions for the functions of war". Section five ended with some extra comments that we will summarize here.
They consider war a "general social release" (paragraph two) It provides "the release and redistribution of undifferentiated tensions". In other words, a type of therapy. It is a "generational stabilizer" (paragraph three) that enables the "deteriorating older generation" to "maintain control of the younger, destroying it if necessary". It clears ideology. It is a basis for international understanding.
SUMMARY AND CONCLUSIONS
Since war is not a "political issue" but used as a means of control, if an "era of peace" were to come, there would have to be drastic changes. Section Seven gives the "bottom line".
War has provided a dependable system to maintain economies. Any substitute would have to be able to take the place of what war does to maintain economies. There would have to be a way to take care of the "waste" war does that will permit it to be independent of the normal supply and demand economy. It must be subject to "arbitrary political control". (paragraph three-Substitutes for Functions of War: Criteria)
In the political aspect, war has been the foundation for a stable government. Political authority is accepted. War has made it able "to maintain necessary class distinctions". It also ensures the "subordination of the citizen to the state" though the concept of nationhood. (paragraph three, functions of war) The substitute for war must make it so an external menace would require people to accept the political authority.
The sociological function has been able to control dangerous social dissidence and destructive tendencies. It has been able to motivate human behavior with social allegiance. To replace this, a credible omnipresent and understood fear of personal destruction must be generated. This fear must be big enough to transcend the value of an individual human to the greater good of the whole.
The ecological function has been used to maintain a balance between gross human population and the supplies available for its survival. The substitute must insure the survival of the species. (man)
SUBSTITUTES FOR THE FUNCTIONS OF WAR: MODELS
Here are a few examples these "experts" came up with in order to replace some of the functions of war. The economic function can be replaced with an in depth social-welfare program. This program can be directed towards the improvement of the conditions of human live. An unreachable space research program is another option. Disarmament inspection system with variants of such a system.
The political function can be a omnipresent (virtually omnipotent) international police force. There should be an established and recognized extraterrestrial menace. They recommend massive global and environmental pollution. They even suggest fictitious alternate enemies.
The sociological function (they call the Control function) can be programs derived from using the Peace Corps as a model. Slavery in a modern, sophisticated form is another option. A motivational function to get control can be intensified environmental pollution. Also, making new religious or other mythologies. Socially oriented blood games is another option.
Since war isn’t choosey on who dies, the ecological function can be a comprehensive program of applied eugenics. (Plain English: breeding superior races)
I am going to end the summary of this report here. Yes, there is much more in the report, but I believe you get the jest of it. I am going on to bring this report into what is happening today.
ARE THE RECOMMENDATIONS BEING FOLLOWED?
This report was concluded in 1966. President Kennedy was shot before he could explain what he was talking about at Columbia University. Johnson ordered this Report to be sealed. The "experts" recommended that no one, except those who needed to know, be exposed to the contents of this report. One man, to whom the American people owe a debt of gratitude, thought we had a right to know. Let’s take a look at what has been going on in America in the past 30 years. Are we being manipulated and conditioned to accept a New World Order from an outline of 15 experts? (Because of lack of space, I will be summarizing. I encourage people to further investigate any examples given to verify).
THE HERD
I found it very interesting that these "experts" took all moral issues out of their evaluations. Man was brought down to the level of animals, like a herd of cattle that needed to have decided what was best for the greater good of the herd. Who would have to be slaughtered and who could be used to increase the herd? What could be done to get rid of the excess members of the herd? What about the potentially "criminal" cattle who would not go with what the owners decided would be best?
This Report made us to be pawns that have been used to benefit the elite. Great study and care was taken as what to do to re-condition these pawns to a whole different type of thinking. These pawns who have been conditioned so long to think one way. Though the types of things I will be discussing are happening all over the world, I will be mainly talking about America. There couldn’t be a New World Order if America didn’t fall first.
POPULATION CONTROL
Since the legalizing of abortion, over twenty years ago, there have been over 36 million Americans murdered before they could be born. That is more Americans than have died in all the conflicts America has been involved with all put together. American’s have been conditioned to believe that this is not "murder" but is "choice".
For Desert Storm, our soldiers had to have shots to "protect them against chemical warfare". These shots were the germs of botchulism and amthrax. Since then over 7000 of our best service men have died. see: The Resnick Interview with Peter Kawaja
Euthanasia and the "right to die with dignity" are being pushed so the "quality of life" can be improved.
Extermination camps are being built to do away with "undesirables".
Aids is a government made disease that the spread of it is encouraged by our government.
GLOBAL PEACE KEEPERS
The United Nations (UN) has a military that goes around the world as "peace keepers". The members of the UN forces come from all countries. These "peace keepers" are also stationed in the United States in the closed bases throughout the country. They are also in some of the bases that are opened. Foreign tanks and vehicles are coming to America and secretly being painted white (UN color) in various military installations around the country.
The US is disarming their military and closing down military bases all over the country. Our president can sign an executive order that will put the military under the command of the UN. US soldiers are already having to put aside their oath and take the oath of the UN forces.
Racism is being pushed over the media and though the government. Should riots develop, as in other countries, we will need a "peace keeping" force in the US. They are ready.
NEW RELIGIONS? BLOOD SACRIFICES?
The New Age will be the only acceptable religion of the NWO. It is everything against Christianity and has infiltrated every area of our lives.
Satanism and other Occult religions are already having ritual human sacrifices.
EXTRATERRESTRIAL ENEMY?
When this was written, over 30 years ago they acknowledged that this would be hard to convince the people of. Even with the UFO sightings that had already been put out. What has happened in the past 30 years?
Well, there have been "alien abductions", and many more UFO sightings. To top it off, there are UFO clubs where people who have "seen aliens" or "been abducted" can get together for conventions.
To top that off, we have had over 25 years of Star Trek, which has enforced a one world government. Throughout both series and the movies they have the "New Age" philosophy. (New Age will be the only philosophy accepted by the NWO) These folks have all kinds of experience with various races on other planets. see: Dirty Watchtower Secrets. // Like Father Like Son: George W. Bush and the Fake Alien Invasion
Star Wars has also conditioned people to believe in a "galaxy far far away". These reinforce extra terrestrial life on other planets. The two movies, "V" and "V the Final Battle" and then the series shows and invasion from another planet. The movie "Alien" shows this also. The world would have to unite, should the "movies and television programs" come to life with a "real" enemy. see: "War of the Worlds" Mind Control Experiment – New World Order Test Run
ENVIRONMENT
There is not scientific evidence available to prove all the environmental problems our government it trying to push on us. There is no such problem as "global warming" for example. But, people such as Vice President Gore and "NWO Lieutenant" Rockefeller are coming out with books that if we don’t unite as a world, to work on the environmental problems, we will not survive. (Fictitious Enemy?) see: Global Warming’s Dirty New Secret // Global Warming Claims Based on False Data
MORE FICTITIOUS ENEMIES
It is interesting that the media, with the help of the government, is coming up with all these "potentially dangerous" groups of people? These extremist groups, such as Christians, Militia members, talk show hosts, right wing radicals, conservatives etc., are being mentioned regularly as "potential terrorists". Between this and the racism the government is pushing, it will make it easy for them to call a police state, and round up all the people who disagree with them. Those considered to be "enemies of the state". see: "Project Megiddo"
SLAVE LABOR
Anyone on welfare is already a slave to the government. They are working on legislation where these people will have to work for their benefits. After 1996, (around May) these benefits will not come in the form of cash or food stamps. There will be a debit card. This will stop "welfare fraud" and give the government more control over it’s welfare slaves.
There are also several labor camps built, ready to activated. These labor camps will be for strong prisoners who are considered "dissidents".
GENETIC EXPERIMENTS
These experiments are already done on aborted babies. Thanks to a bill signed into law by Pres. Clinton to support fetal experiments.
What many folks don’t know about are the bio-spheres being built in the mountains. (The two I know about are, in Washington state and North Carolina.) No one can have access to these places now as they are surrounded by guards. Bio-sphere is the UN term for Colony. It is rumored that these "colonies" are being used for breeding of the "superior race".
There are also concentration camps built that have "storage facilities" for human organs. These camps will be used for genetic experiments.
IN CLOSING
I would like to comment that in all the reports this author has done, and all the information I have read, Iron Mountain has had the biggest impact on me. The fact that a few men can come up with a plan to bring a "once free nation" into fascism upsets me. The fact that many of their suggestions are being followed makes me angry. The fact the majority of the American people don’t know, and don’t want to know is very unbelievable to me.
I’m sure our founding fathers are "spinning in their graves" as they watch us give up with out a fight what they fought and died for without a fight.
NOW IS THE TIME FOR ALL GOOD MEN TO COME TO THE AID OF THEIR COUNTRY!
Copyright 1998 PropheZine – Bob Lally

From the editor of Wisdom and Freedom:
The Iron Mountain report was originally published by Dell. It is extremely hard to find now. In the early 90s a sequel was published. The author of this book took full credit for the first book and claimed that it was a hoax. The only problem with this "hoax" is that everything in the original book has worked out to be true. So whether the original title is a hoax or not is irrelevant. The original book is a blueprint for the present and the future. Click here to find more about this controversial book from Simon & Schuster.

Iron Mountain Report: A Hoax or Betrayal?