American Policy on Ukraine Crisis is Wrongheaded

A recent Post/ABC poll found that 56 percent of Americans would be in favor of the United States and its allies imposing sanctions on Russia for its role so far in the crisis in Ukraine.  This is not surprising given the fact that most Americans get their news one sound bite at a time delivered by a media that generally is complicit in spouting whatever the Washington, D.C. line is on a story.  And it doesn’t help that President Obama ignores the sins of his own government while lying that Russia’s decision to send troops into Crimea is a “violation of Ukrainian sovereignty and territorial integrity…and breach of international law.

Then, there is the obligatory bluster of America’s biggest warmonger – John McCain.  Not only does he favor sanctions against Russia, but he also wants Congress to send American tax dollars to Kiev and U.S. missiles to the Czech Republic to show those evil Ruskies that we mean business.  And just a few days ago he ranted that the Obama Administration is derelict in its duty because it won’t supply the new regime in Kiev with arms, ammunition, and intelligence support for Ukraine’s military.

What makes the view of 56 percent of Americans, John McCain and President Obama ridiculous is that the crisis in Ukraine has American fingerprints all over it.  A leaked phone call between Assistant Secretary of State Victoria Nuland and U.S. Ambassador to the Ukraine, Geoffrey Pyatt indicates American government involvement with protests and the eventual coup in Kiev.

And both Nuland and Pyatt were photographed in Kiev in December handing out baked goods and mingling with anti-government protestors.  For those that say this proves nothing, since when is it appropriate for a sitting ambassador to directly encourage protests against the government he is supposedly engaged in diplomatic relations with?  Can we now understand why ambassadors like Chris Stevens get killed?

The point is, whether the U.S. government supported the coup which overthrew the popularly elected president in Ukraine directly or indirectly is immaterial.  Washington’s support for the coup is primarily responsible for the current tensions between Russia and the U.S.  We rightly wouldn’t like it if Russia facilitated the overthrow of the government in Mexico and supported a new regime hostile to America in that country.  Why do Americans have a hard time feeling empathy towards others?

But, the American response to Ukraine is also wrongheaded because the new Washington supported regime in Kiev is filled with ultra-rightist Svoboda party members and other neo-Nazis.  These are hardly the kinds of folks that share our values of human rights and liberty.  But, in the view of Washington, damn the Ukrainian people as long as their leaders are supportive of the West, not Russia.  Thus, once again, our government is playing politics with the wellbeing of people in another country.  This can only lead to disaster, not a good outcome.

Perhaps the biggest idiocy of the American position on the crisis in Ukraine is the belief that we could enact sanctions against Russia for her part in the crisis with no consequences for ourselves and our trading partners.

First of all, Russia is a major trading partner with all of Europe.  Sanctions against her would also harm her trading partners.

China would support Russia and the two of them could stop using U.S. dollars for international purchases.  Both could also completely stop buying U.S. debt.  The consequences for our economy would be devastating and quite possibly be the final nail in the coffin for the dollar as the world’s reserve currency.  Washington would be faced with two choices:  continue to spend at current levels and face hyperinflation at home or live within its means by drastically cutting federal spending and face social unrest from Americans who have become accustomed to federal largess.

The above scenario is inevitable in any event, but Washington would expedite the event by imposing sanctions on Russia now.

At the end of the day, the U.S. should leave Ukraine alone.  She has already caused enormous harm to the Ukrainian people.  And pushing the envelope by imposing sanctions on Russia could wreak economic devastation on her economy.  That is why the American policy toward Ukraine is wrongheaded.

Obamacare and False Claims

Kevin Short over at the Huffington Post produced a wrongheaded post this week titled, “Obamacare Just Made Americans Richer Without Anyone Noticing”.  Citing a report issued by the Commerce Department’s Bureau of Economic Analysis and calculations made by the Wall Street Journal, Short claims Obama’s so-called Affordable Care Act (ACA), better known as Obamacare, was responsible for three-quarters of the rise in Americans’ spending and income growth in January.  Thus, according to Short, the ACA in its first month of operation has already made Americans richer.

The problem with Short’s analysis and the reason why Americans didn’t notice they were richer is because they aren’t.  Short’s claim is nothing more than typical Keynesian bunk.

So, how did the ACA make Americans’ richer in January according to Short?  Well, the expansion of Medicaid funding to the tune of about $19 billion and $15 billion in subsidies received by Obamacare enrollees did the trick.  The logic goes, because some Americans received a combined $34 billion in federal largess, that money will be spent in the economy providing new jobs for countless Americans.

Of course, what Short fails to mention is where the money for those welfare benefits (Medicaid and subsidies) came from.  Did they come from an increase in worker productivity?  Did they come from an expansion of business and employment?  No.  In fact, according to the Institute for Supply Management  its employment gauge in February declined for the first time in 25 months and currently stands at its lowest reading since March 2010.

Obviously, the money came from taxpayers, either through direct tax payments or debt monetization by the Federal Reserve.  Neither approach represents an expansion of the economy or wealth production.  What has happened is akin to taking money from one pocket and transferring it to the other.  Only in Short’s world and the world of Keynesians everywhere is this considered prosperity.

But, what is even more troublesome is how that $34 billion was spent in January.  Again, according to the Bureau of Economic Analysis, Obamacare handouts may have been responsible for a $29 billion increase in health care services.  Besides utilities, all other spending categories experienced a decline.

What this means is if Obamacare further increases government spending on health care, then the cost of health care will rise even higher.  All of that new money entering the health care industry will bid up prices to heights never seen before.  This is precisely the reason health care costs have been on the rise for the last 50 years.

Over the last few years, there have been many false claims made about Obamacare.  From “you can keep your coverage and doctor” to health care costs will decrease to more Americans will have health care coverage, there has been no shortage of mistruths.  And now we have the outrageous claim that the ACA is making Americans richer.  Not only does taking from one citizen and giving to another not make us richer, increased government spending on health care will surely make us poorer.

President is Pushing Another Failed Policy

A couple of weeks ago, I received an email update from President Obama which discussed his signing of the Executive Order raising the minimum wage to $10.10 an hour for federal contract workers.  Within his remarks the President stated his belief that, “It’s the right thing to do”, raising the minimum wage for federal contract workers.

Naturally the President used the news of the Executive Order as a segue to lobby Congress to raise the federal minimum wage from $7.25 to $10.10 an hour for all American workers.  He claims raising the minimum wage “would move millions of Americans out of poverty”.  In fact, Obama indicated that, “Raising the minimum wage would grow the economy for everyone”.  The latter remark is based on his undying Keynesian dogma that more spending is the key to growing the economy.

There’s only one big problem with the President’s position on raising the minimum wage.  It’s called the Law of Demand.  According to this law of economics, with all other factors being equal, when the price of a good or service increases, demand for that good or service decreases and vice versa.

In the case of minimum wage laws, the service in question is the labor offered by workers.  Since minimum wage laws make the price of labor artificially higher the demand for labor decreases per the law of demand.  Consequently, some workers will receive pink slips and others will not be hired.  Higher unemployment will result.

In fact, a Congressional Budget Office report last week confirmed just that.  It indicated that Obama’s proposal to raise the minimum wage from $7.25/hour to $10.25/hour would result in the loss of possibly 1 million jobs.

And there are other reports issued by economists who know the laws of their science, which have found that minimum wage measures cause higher unemployment.  It’s also important to understand that that higher unemployment will result in greater income inequality between rich and poor.

At the end of the day, the President’s belief that raising the minimum wage will grow the economy is ridiculous.  In the first place, the law of demand tells us that less people will be working.  In the second place, the president is assuming that the money businesses earn which does not go to higher wages for their employees, somehow gets sucked down a black hole.  Does he not understand that that money could be channeled into productive enterprises like plant expansions, training for employees, and research and development?  All are enterprises which ultimately lead to job creation and higher pay for workers.  Even my 8^th grade economics students understand this.  They also understanding that raising the minimum wage is not the right thing to do.