The State of the Union

By Ronald E. Hignight

There are Populist and Elitist, Liberals and Conservatives, Libertarians, Centrists and whatever. One can hardly make it through an editorial or political comment without being subjected to polarized addendums to an elected official’s name. If a senator or representative suggests that they are for or against something, the reasoning employed in the decision is lost in the clamor of reporters to categorize and isolate the position for their readers.

We are now told that the President has moved from being a pragmatic leader (they could hardly call him an Elitist), to a Populist leaning leader simply because he is sponsoring a discretionary spending freeze in Federal government. Obama’s detractors grin and opine that the shift in governmental philosophy was actually occasioned by the Democratic Party’s defeat in Massachusetts and Obama’s recognition that his party is in danger of losing its franchise.

Post State of the Union, it appears that what mandated the spending freeze was not self-preservation, but rather, a move made to curtail spending in light of the projected success of TARP. Said another way, the discretionary spending is no longer necessary to achieve the aims of the Obama administration and no administration, Democrat or Republican, would want to be known as, or tolerated as, a spend-thrift administration.

Do we now have a Populist President? I don’t think so. Are we moving towards Libertarianism? Let’s hope not. We have altogether too many domestic issues to resolve before we may once again trim government to its bare-boned essentials. The belabored health care reform bill will have to be amended through a series of small battles until it is made effectual. The United States will, as a world citizen, have to curb its energy needs for the benefit of man-kind. Our un-checked capitalist economic policies will have to address the needs of the many, rather than the few, until such time as our citizens are back on their feet.

If Obama has misjudged the American people, he did so only by assigning priority to health care over jobs. It would appear that his only true ‘move’, here at the end of his first year in office, is to focus more on jobs and less on health care. If Americans do not have secure jobs paying a livable wage, there are no monies for the purchase of health care.

While some may argue against the stimulus, and I was one of them, we must all acknowledge that the infrastructure of our economy, especially the banks, has been saved by way of the stimulus. I was wary of stimulus but, pragmatically, it is working and it is time to go on to other domestic concerns – namely, jobs. As for the bail-outs – they were a bad idea and have gained us nothing. A few factory workers up north were given a temporary reprieve but few think that the auto dealers will really survive and thrive. All the bail-outs did was prolong the auto industry’s death rattle.

Obama has a plan to invigorate the economy by offering tax cuts of up to $5,000 each if industry will hire in a meaningful way. The rules are strict, but, on balance, fair to the people footing the bill. But, I’ve a more aggressive step in mind that will create jobs well into the future and end, hopefully, America’s wasteful reliance upon Wall Street to generate jobs.

What I propose is that we somehow force those who are ‘sitting’ on huge cache’s of wealth to do something with their wealth other than to pass it to Wall Street for incremental increase of their wealth. What I would have them do is to obtain direct tax credit for creating jobs. If they merely deposit their holdings with Wall Street, they will be heavily taxed. If they start a new business employing people, they will receive tax credits.

We already do this for corporations – why not extend it to investors? Not only would we be putting people back to work, we would be stimulating the economy through growth, competition and diversity. We would also be minimizing our country’s reliance upon the speculative markets of Wall Street as the basis of our economy.

Lastly, we should take a long and hard look at the insurance industry to see if the industry truly benefits society or is a leach upon society. In its un-regulated state, it is clearly a leach upon society. In its semi-regulated state, it still leaches upon society but does so in a manner that most have come to accept merely because the industry is so ingrained in our society that to fight it is very nearly impossible.

In its purest form, insurance is nothing more than paying another to take a risk that you are unwilling to abide by. Lenders insist on insurance to protect their proprietary liens against money loaned to purchase property. States compel an individual to purchase insurance as against one’s negligence towards others. Individuals seeking to provide for their families after death, purchase insurance policies affording piece of mind. Is all of this risk transferring or shifting really necessary? Is it an incidence that truly benefits society? When all is said and done, the risk is still there – it is just a matter of who pays for it.

Insurance companies write thousands of policies seeking to spread the risk among its policy holders as against a single claim. And, to make it work, they invest the monies collected, rather than merely reserve them, in order to make profit. This sets up the first problem of the insurance industry. How to manage investments in order to make a profit? The record of AIG, for example, shows what can happen if the insurance company mismanages its investments.

The second problem with the insurance industry arises from the not-so-little disparity between the premium paid and the payout. In fact, they have nothing to do with each other on the balance sheet. Claims, however, are treated as though insufficient premiums have been collected and are vigorously fought and denied by the insurance industry.

In those areas where a State has sought to regulate insurance, i.e., where the State has mandated the purchase of insurance in such areas as Workers’ Compensation, the insurance industry is required to pursue approval of premium rate hikes. They are required to show neither the effect of claims paid nor of their secrete investments. They are merely required to assert that they need upward premium adjustments to maintain their franchise. In other words, they want more money, but are not required to prove that they need more money, and will seek whatever the market will bear.

To cover these problems, the insurance industry falls back on its manufactured credibility and reputation image with the aid of Madison Avenue. It distorts its condition and viability presenting policies of insurance in a fully positive light without danger of loss. With subliminal messaging, it even seeks to secure a larger purchasing pool by convincing individuals that insurance is an absolute necessity of life. Competition as among insurance companies has virtually destroyed self-restraint of the type implicit within their Madison Avenue messages.

The so-called ‘public-option’ in health care reform would have eventually led to more self-restraint within the private insurance industry had it been enacted. I suspect that a ‘public-option’ in home, auto and life insurance would likewise lead to self-restraint in those insurance domains as well. It seems that the insurance industries objection to regulation and unwillingness to engage in self-restraint, leaves little alternative other than to enter into competition with the industry through a government operated agency.

In time, and with public-options, the insurance industry will lose most of its leaching aspect and might tend to benefit society. The public-option competition would force insurance companies into a ‘lean and mean’ approach to do business and would eventually cure both principle problems associated with the industry. If they refuse to go lean and mean, they would vanish.

To be sure, health, the environment, international conflicts and jobs are going to be capturing the limelight of political discussion. Unless we bring insurance under control, through meaningful and far-ranging political discussion, we will, however, continue to wander towards a cliff with lead weights in our pockets somehow expecting to overcome gravity and fly into prosperity. My cut is that we will fall to our doom.