Ruminations, November 28, 2010

The dollar slides some more and the Russians see red.

Speaking in Berlin last week, Russian Prime Minister Vladimir Putin said that the euro may replace the dollar and become the new world reserve currency. This coming on the heels of Chinese-Russian bilateral trade talks in which the participants agreed not to use dollars as the measure of trade, but to work in local currencies. Neither of these events should have been a surprise, because 17 months ago Brazil, Russia, India and China met in Moscow to discuss the possibility of a new world reserve currency to replace the dollar.

But given the sovereign bailouts (e.g., Greece and Ireland) and potential bailouts (Portugal and Spain), the likelihood that the euro may replace the dollar as the world reserve currency is slim. Add to this the statement last week by German finance minister Wolfgang Schäuble to the Bundestag, "We're not swimming in money, we're drowning in debts." In fact at this point, there is concern that the euro may not survive. Two weeks ago, EU President Herman Van Rompuy said, "We all have to work together in order to survive with the euro zone, because if we don't survive with the euro zone we will not survive with the European Union."

If that’s the case, then why did Putin make his statement? It may be that:

• He did it to show solidarity with the European Union, which derives much of its energy from Russia. Further to that end, last week he proposed a free-trade zone between Russia and the European Union.
• He did it to throw a diplomatic wedge between the United States and the EU.
• He did it to cause concern in Washington about the U.S. current policy to use inflation (i.e., Quantitative Easing) as a tool to move the United States out of the recession.

In the past, Russia/Soviet Union made several attempts, usually militarily, to cause a rift between Western Europe and the United States. Now it appears that Russia may use the weapon that the U.S. used to contribute to the break-up of the Soviet Union – economics. This time, it might work.

Who runs the White House?

During the presidency of George W. Bush, it was an article of faith among extreme leftists that Bush was not very bright, had a frat-boy mentality and did not really run the American government; the government was run by, according to this group, Vice President Dick Cheney.

This is nothing new. During Ronald Reagan’s Administration, there was also a group of extreme leftists that thought Reagan to be an “amiable dunce” and that the American government was run by an anonymous group of arch-conservatives.

Both these assessments were patently wrong. But, that does bring a new question: Who is running the White House now?

Obama is running his own foreign policy, but is he running domestic policy? In 2010, Scott Brown won the special senatorial election in Massachusetts and said that he would be the 41^st vote to stop the Obama Healthcare bill. In a subsequent Democratic leadership meeting, it was reported that Obama was ready to concede defeat on this issue but House Speaker Nancy Pelosi (D, CA) turned the meeting around and said that there were tactics that could be used to force the health care bill through Congress in spite of Brown, and she won the day.

After the Republican victory this fall, White House Senior Advisor David Axelrod suggested that Obama may be willing to compromise and support a limited extension of the Bush-era tax cuts. Not so, said Pelosi: the tax cuts would apply to those earning under $200,000 only. Now, constitutionally, spending bills originate in the House and Pelosi does have the leadership authority on what tax bills are written. But, normally the party of the President follows his leadership; in this case, Pelosi may prevail again.

We can’t really say that Pelosi is “running the White House” on domestic issues but she is influential; very influential. And, like her policies or not, she has been successful. If she ever does put on a foreign policy hat, then may be we will have to really wonder: Who’s running the White House?

Healthcare missed $80 billion

In the 2,600 pages of the Healthcare act, there are numerous items with financial implications and its proponents have touted the savings that the Healthcare will bring to the nation. But they left $80 billion on the table.

In a recent working paper produced by the Cato Institute (a conservative think tank), Michael Cannon posits that of $113 billion annual medical malpractice payments made each year, only $33 billion ends up with patients. That’s $80 billion that could have been saved, had Congress acted upon it. (For the full report, see www.cato.org/pubs/researchnotes/WorkingPaper-3.pdf.)

Put it another way: given the number of people who were insured in the year of the study, it cost each insured American $400 per year to cover medical malpractice. And of that $400-per-person cost, $285 did not end up in the pockets of the patients.

Why didn’t Congress address this? It would be cynical to say because trial lawyers are big contributors to the Democratic Party and that the authors of the bill would rather collect $180 million in campaign donations than to cut expense for taxpayers by $80 billion. But, let’s not get stuck on cynical: It’s not that the Democrats were sacrificing the country for political payoffs; it was that the trial lawyers were rewarding the politicians for agreeing with them. The only way to ensure that medical practitioners are vigilant, the lawyers believe, is to threaten them with malpractice financial penalties.

But still, while health insurers returned an average of 3.3 percent profit in 2009, according to Forbes, their profits were a target of the Obama health care proponents. It would seem that that either that the bill’s authors had a poor understanding of fiscal reality or that they were so intent on passing something that they ignored some of the potential savings.

If you knew nothing else about the health care bill, wouldn’t you become a little suspicious of the abilities and/or motivations of people who left $80 billion on the table?

A council of elders

When dealing with foreign powers, American Presidents call in their foreign policy team consisting of cabinet members and experts in appropriate fields. This is as it should be, but is it enough?

In a week, or so, Russian President Dmitry Medvedev will pay a state visit to Poland. In view of the long and contentious relationship between the two states, this could be a critical meeting for them. As with American Presidents, Polish President Bronislaw Komorowski has consulted with his cabinet and experts. But he has gone one step further: he has called in for council all living Polish Presidents and prime ministers of the democratic era – and even included communist-era leader Wojciech Jaruzelski.

Wouldn’t it be equally wise if President Barack Obama sought foreign affairs counsel from former Presidents George W. Bush, Bill Clinton, George H.W. Bush and Jimmie Carter? They have all led the United States, dealt with similar situations and have had the interests of the United States at heart. Of course there are political differences, but if the President of Poland feels comfortable enough to bring in former communist Jaruzelski, how much worse could an adverse American political party be?

Maybe American presidents could learn something from an ally. Just saying.

A touch of class

Connecticut Republican candidate for the Senate Linda McMahon lost in November’s election. Three weeks after the election, no one expected to see her on television again but there she was in another ad:

“I'm Linda McMahon. I recently ran for the United States Senate in Connecticut. I didn't win the election, but to everyone whose hand I shook, who touched my heart and who challenged my thinking throughout the campaign, I want to say: 'Thank You.' I am proud of what we accomplished. I appreciate your support and I hope that you and your family have a Happy Thanksgiving and a wonderful holiday season.”

Some have speculated that she ran the ad because she was planning a new campaign. Maybe so. But how many others of the thousands of candidates who lost elections (not to mention those who won elections) took out ads to wish voters “Happy Thanksgiving and a wonderful holiday season.”

It showed a touch of class.

Quote without comment

Robert J. Samuelson, writing in The Washington Post, December 7, 2009: “President Obama's critics sometimes say that he is engineering a government takeover of health care … What's happening is the reverse, which is more interesting and alarming: Health care is taking over government.”