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    Friday, December 9, 2016

    Economic Theory Run Amok

    There were two unrelated stories yesterday that highlighted how badly our country has gone off the rails due to primacy we have bestowed on corporations and their owners and the supposed "job creators". Goldman Sachs put out research report that detailed some of the impacts of the expected actions, if there are such things, of the Trump administration. But there was one point in the report that simply staggered me. In discussing the possible repeal of Obamacare, the report states, "The effect of Obamacare 'repeal and replace' is less clear, but seems likely to provide a modest net stimulus in the near term—potentially as soon as Q2 2017—as a result of the likely repeal of the taxes used to pay for some of the program."  The problems with this statement are profound. First, we have been waiting for the "replace" part of "repeal and replace" for seven years now and there is still no plan in sight. More importantly, estimates show that, depending on what "repeal" actually takes place, somewhere between 17 and 37 million Americans will lose their health insurance. The idea that millions of Americans losing their health insurance would be a net stimulus to our economy seems to be beyond credulity. My guess is what the report really means is that the repeal of Obamacare will be a net positive to corporations' bottom line as a result of the decrease in taxes firms will have to pay. For the country, on the other hand, the monetary cost will be enormous as millions of people will forgo medical treatment until their condition becomes so serious it requires much more expensive treatment that the preventive care would have cost in the first place. Other will simply use the emergency room, the most expensive kind of care, for their regular health needs. Of course, all these extra costs will fall on the federal, state, and local governments and end up costing all the taxpayers much more money in the long run. But shifting costs off of business and onto the government is a two-for - corporations can make more money and the increasing government debt means not only that government doesn't work but that we will have to cut services even more. The myopia on corporate profits to the exclusion of all else is one of the reasons Goldman is called the "vampire squid".

    The second item was an article that addressed the impact of that hoax called global warming. This piece accepts the universal scientific wisdom that global warming is real and points out how more affluent communities will be protected from its impact. And that is by design. Cedar Rapids, Iowa and Manville, New Jersey are two towns that couldn't be more different. Cedar Rapids is a big city in a rural state. Manville is a suburb of New York City. But both towns have suffered multiple serious flooding incidents in the last decade. And both have suffered a similar fate when it comes to protecting themselves against further flooding. Essentially both communities do not have high enough property values to make them worth saving, at least according to the Army Corps of Engineers.

    Both communities asked the Corps for help in building defenses against further flooding And both were turned down by the Corps. And the Corps rationale sounds perfectly reasonable. Cost-benefit analysis of any plan the Corps could have undertaken to reduce flooding did not get above 1. In essence, the Corps would have spent more money than the structures they were protecting were worth, so, by law, the Corps could do nothing to help these communities. As the article points out, if the flooding had occurred in a wealthy community like Star Island in Miami which has houses worth tens of millions, the cost benefit analysis would probably be above 1 and the protection would be provided. This process, then, just locks in a geographical bias as to who will be protected from flooding simply because of property values. Richer communities will be saved. Poorer ones will be left to wash away. As the Mayor of Manville noted, "It is simply not fair to penalize Manville residents because their homes are more modest, especially after repeated flooding has cut the values of their homes in half." The head of Cedar Rapids flood prevention program was equally explicit saying the Corps' policies are "skewed against the Midwest", primarily because of the generally lower property values there. It was especially ironic to hear Iowa's two Republican Senators also berate the Corps for using a strict cost-benefit analysis in deciding what areas can and will be protected. Perhaps they should speak to their GOP colleague Jim Inhofe about global warming and most of their other honorable friends about strictly using a cost benefit analysis on most government projects.

    Both these items emphasize the disturbing pattern that specific economic benefits trump virtually all other considerations these days, including the well-being of our fellow citizens. Of course, it was forever thus and of course the economic costs are an important consideration. But they should not always be the overriding factor that they seem to be today.


    1 comment:

    1. But for Cedar Rapids City Manager Jeff Pomeranz's foresight and the brave first responders and volunteers who elected the temporary Hesco bastion barriers, Cedar Rapids would have sustained the worst flood damage this past september since 2008. Which caused 900 mm in damage and demolished 1400 properties.

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