Your Teacher Said What?!

by Joe Kernen

  Even for Progressives, this was groundbreaking. There had never been a law that required anyone to buy anything at all, just for the privilege of breathing; even their favorite example—the requirement that drivers purchase auto insurance—was still a matter of choice: If you want to drive on public roads, you have to have insurance; if you don’t want to, you don’t have to.

  The New York Times saw this as a “fundamental question”:If Congress approves health care reform, virtually all Americans will be required to buy health insurance or pay a penalty. That raises a fundamental question . . .

  Could it be? Did the Times actually recognize some limit on the legitimacy of the federal government in demanding such a requirement? Uh, no:. . . a fundamental question: Will the policies be affordable?

  “Mandates and Affordability,” New York Times, November 1, 2009

  No, the “fundamental question” is not affordability; it’s legality. Here’s the Journal:The centerpiece of the Obama-Baucus plan is a decree that everyone purchase heavily regulated insurance policies or else pay a penalty. This government mandate would require huge subsidies as well as brute force to get anywhere near the goal of universal coverage. . . . Everyone would be forced to buy these government-approved policies, whether or not they suit their needs or budget. Families would face tax penalties as high as $3,800 a year for not complying, singles $950. As one resident of Massachusetts where Mitt Romney imposed an individual mandate in 2006 put it in a Journal story yesterday, this is like taxing the homeless for not buying a mansion.

  “Another Health-Care Invention,” Wall Street Journal,

  October 15, 2009

  In the end, the debate over Obamacare—a debate that is still going on—is about the most basic principles of the free market: scarcity and choice. Scarcity is what gives things value; choosing one option over another is how we express our own values.46 In a free market, the way we allocate scarce goods (which is pretty much everything) is by price. When people choose to buy something at one price and not at another, they are (as we free-market types say) “voting with their wallets.” Any argument over the way we buy health care—pills, doctor visits, surgery, wheelchairs, and those inedible meals they serve in hospitals—that forgets that all of these things are scarce isn’t just anti–free market; it’s antireality.

  However, that actually describes not only the Affordable Care Act but the entire health-care industry. Because most of the prices charged by doctors, pharmacies, and hospitals is paid by someone other than the person who actually uses their services, price signals don’t really communicate very much. When you need an appendectomy—as I did only a few months ago—you don’t shop around for the best price, partly because, well, you need an appendectomy, and partly because you don’t pay for it: your insurance does.

  What this means is that a whole bunch of very scarce health-care goods are allocated by something other than price, which is by definition inefficient. There are a lot of arguments about how much people should be using price to make health-care decisions, since the alternative to rationing by price is rationing by . . . someone else. You can either recognize this or you can be the New York Times:Critics have charged that this sensible idea would lead to rationing of care. (That would be true only if you believed that patients should have an unbridled right to treatments proven to be inferior.)

  “Reform and Medical Costs,” New York Times, November 15, 2009

  The battle over women’s health care emerged after a federal advisory committee recommended recently that younger women should not routinely have mammograms but should first consult with their doctors. . . . Its judgment was seized upon by Republican scaremongers as an example of the kind of “rationing” that would allow government bureaucrats to deny insurance coverage of important health procedures.

  “Senate Health Care Follies,” New York Times, December 4, 2009

  On the other hand (I’m tempted to say the “right” hand), there’s the Wall Street Journal:President Obama objects when people use the word “rationing” in regards to government-run health care. But rationing is inevitable if we simply expand government control without fixing the way health care is reimbursed so that doctors and patients become sensitive to issues of price and quality.

  “Government Health Plans Always Ration Care,”

  Wall Street Journal, June 25, 2009

  And so it goes. It’s hard, if not impossible, to tell whether the positions taken by the New York Times are so consistently wrong out of ignorance, denial, or a deliberate attempt to gloss over problems that get in the way of the newspaper’s Progressive agenda (this is actually a problem with most Progressives). But whether it’s electoral results, climate change, financial regulation, or health-care reform, the last two pages of the paper’s first section—where the Times makes its editorial positions plain—are one constant in a changing world. If the compass is supposed to point north, you can rely on the Times to direct you south.

  In testing a statistical hypothesis, scientists—really, everyone—should be on the lookout for two kinds of error: Type I errors, or false positives, are essentially seeing something that isn’t there; false negatives, or type II errors, happen when you fail to see something that is there.

  When both occur at exactly the same time, there’s a good chance you’re reading an editorial in the New York Times.

  Epilogue:

  The View from 2011

  Writing this book (okay, thinking about writing this book) started in early 2009 with the inauguration of President Obama. It ended—sort of—with the midterm elections that “refudiated ” (I love that word), more than anything else, his economic philosophy.

  This whole thing began with one nervous father: nervous about the widespread acceptance of Progressive ideas and especially the uncritical way they were being presented to my children. If you’ve gotten this far in the book, you know that I recognize that Progressivism has been around, in the United States anyway, for a century, so it’s not that I blame everything about its popularity on the current administration. However, from early 2009 to the middle of 2010, it looked a lot like we had arrived at some sort of Progressive nirvana: a government takeover of health care; management of virtually the entire financial industry; ownership of more than half of the domestic automobile business; and, of course, close to a trillion dollars in “stimulus” spending that mostly amounted to a gigantic subsidy of the country’s public employee unions while increasing the nation’s unemployment rate

  The second half of 2010, however, was a different story: the rise of the Tea Party movement, huge declines in the president’s approval ratings, and, of course, the midterm elections, which turned a seventy-six-vote Democratic advantage in the House of Representatives into a fifty-nine-vote Republican majority . . . the biggest change in more than sixty years.

  So I should be less nervous now than when I started, right?

  Wrong.

  As 2010 turned into 2011, our representatives in Washington were attempting to deal with a couple of, shall we say, urgent bits of business. The first was the expiration, at year’s end, of the tax cuts originally passed during the administration of George W. Bush. On December 6, congressional Republicans and the president agreed to extend both the Bush tax cuts and federal unemployment benefits, while reducing the taxes that just about everyone would pay into Social Security and Medicare for 2011. It was an expensive gesture: nearly $900 billion in taxes foregone. Almost all of the money—eight dollars in ten, by some estimates—was aimed at people earning less than $250,000 a year. For Progressives, it was Christmas.

  Sure it was.

  Calling the Progressive response to the compromise—which it was; no one got exactly what they wanted—hysterical is an understatement. Congressman Jerrold Nadler (D-NY) called the Republicans a “bunch of gangsters.” Richard Trumka, president of the AFL-CIO, called it an “unconscionable giveaway.” Bernie Sanders, the Senate’s only (admitted) socialist, gave an eight-and-a-half-hour speech i
n which the nicest thing he called the deal was a “moral outrage.” Michael Capuano (D-MA) was so peeved that he said that President Obama “may or may not be” the Democrats’ best candidate for 2012, a tantrum that was endorsed by such Progressive icons as Keith Olbermann and Ralph Nader.

  Why the over-the-top rhetoric? Because in addition to preserving the tax cuts for “ordinary” Americans, the deal did the same for the rich—you know, the people and small businesses that report income in excess of $250,000 a year. The most productive members of society. The ones who do all the hiring and investment. Yup, them.

  Or that’s how it was reported, anyway, even by reporters who should have known better. The actual compromise didn’t tax people at different rates; it taxed income. Which means that even the richest Americans pay the same tax on their first $250,000 of income that everyone else. But never mind; it’s not exactly news that Progressives can’t understand tax incentives.

  So Progressives, who had been screaming for a second stimulus for months, responded to a deal that would have been—in the words of conservative columnist Charles Krauthammer, the “largest stimulus in galactic history”—by stamping their Progressive feet and threatening to take their Progressive ball home. The reason was that Progressives don’t just stand for a reflexive mistrust of the free market; they stand at attention when it comes to redistributing income—and that means that anything that didn’t punish the wealthy just had to be evil.

  Here’s how bad it got: I found myself defending the president on Squawk Box.

  The second, and probably more significant, policy controversy of the end of 2010 was kicked off by the publication of several different plans for reducing the staggering difference between the amount of money that the federal government was obliging itself to spend and the amount of money that the American taxpayer was willing to pay for those obligations. The deficit-reduction plan, first floated by a bipartisan presidential commission, actually showed how it was possible not only to eliminate the ongoing deficit but also to put Social Security back in the black.

  The Progressive response? Nancy Pelosi called it “simply unacceptable.” It “told working Americans to drop dead,” according to Richard Trumka. Paul Krugman said that the commission had been “hijacked.”

  Yeesh.

  Near as I can tell, the reason for such hostility to the Bowles-Simpson plan (named for the commission’s chairmen, one a Democrat, the other a Republican) was the way it “gutted” Social Security. It did this—I swear—by increasing the age at which Americans could receive their full retirement benefits from sixty-five to sixty-seven—seventy-five years from now.

  Progressivism may be hysterical, but it isn’t in retreat; it’s on the attack. And it retains a powerful set of channels for communicating its philosophy, including television, newspapers, and the Internet.

  Oh, and the schools.

  Toward the end of the 2010 school year, and therefore the writing of this book, Blake brought home a writing project for her fifth-grade class entitled “Understanding Environmental Concerns.” Here’s a sample:Today you read about the environment and the importance of our country’s natural resources. Currently a conflict exists between people who want to reduce the amount of chemicals in the air in order to protect the environment, and those who say it hurts business if we limit the amount of emissions they release.

  Now, if you’re going to load a question for a bunch of ten-year-olds, you couldn’t really do much better than this: The conflict is between people who want to protect the environment and those who want to help (or at least not hurt) business. Environment or business: Pick one.

  Here’s part of what Blake wrote in response:Although I am an environmentalist, in this argument I support the business side. I agree that limiting the amount of emissions a company can release would hurt business. If a company was told to limit its production, it would make less goods, reducing the money it makes. If a company cannot make money, it cannot employ a lot of workers! This would end up hurting the economy, and the unemployed people.

  She goes on to propose a compromise involving frequent testing to make sure that soil, plants, and animals are not harmed; and encouraging the company to use its profits to develop greener ways of operating its factories.

  It may not be easy to raise a fifth-grade capitalist in twenty-first-century America. But it can be done. Just ask Blake.

  Acknowledgments

  This book began with a confession: that I haven’t really had all that much to complain about during my life. The reason is that I’ve been extremely lucky. Part of that luck was to be born into the most affluent and freest society in human history—something that every American should probably give thanks for at least once a year.

  But most of my luck has appeared in the form of other people, and I’d like to recognize a number of them.

  First, Bill Rosen has been an invaluable researcher and collaborator; this book wouldn’t have existed without him.

  I’m grateful to Mark Hoffman, president of CNBC, for his support and for allowing me the freedom and opportunity to write Your Teacher Said What?! Brian Steel and Nik Deogun have blessed the project and offered valuable advice in its creation.

  Every day, I’m grateful for the chance to work with a bunch of extraordinary professionals on Squawk Box, and I hope this will make up for all the times I forgot to say so to Becky Quick and Carl Quintanilla, my coanchors for most of the last decade; to our executive producer, Matt Quayle, and our vice president of business news, Jeremy Pink. Also, thanks to Todd Bonin, Anne Tironi, Rob Contino, Matt Greco, Mark Haines, David Faber, Larry Kudlow, Rick Santelli, Ron Insana, Bill Griffeth, and Susan Krakower.

  A special thanks to longtime friends Ron Meyer, Peter Foss, Rick Cotton, Jack Schneider, and David Zaslav.

  To my mentors, the people who gave me so many opportunities to earn a living in the world of television: Jack Welch (and his wife Suzy); Jeff Immelt; Bob and Suzanne Wright; Jeff Zucker. Thanks also to my former boss at CNBC, Roger Ailes (and his wife Beth); Bill Bolster; Neil Cavuto; and Jonathan Wald.

  Blake has a special thank you to offer her friends and—yes—her teachers, for though this project was always intended to remedy some of the gaps in the way she’s been taught how the free market works, she’s been the lucky beneficiary of a first-rate education in just about everything else, and that matters, too—a lot.

  It’s likely that readers will notice that this book depends a huge amount on the reporting of others. Much of their work is cited in the endnotes, but a few deserve special notice: my friend and frequent Squawk Box guest Steve Forbes, whose magazine and books are practically a road map to free-market philosophy, much of which I’ve channeled over the last year. The same is true for the editorial pages of the Wall Street Journal and the magazine Reason, and I’m grateful to their respective editors, Paul Gigot and Nick Gillespie, as well as the dozens of contributors whose thoughts are on display in dozens of places throughout this book. Barry Habib was a huge help in explaining the ways of modern unions. Even more is owed to writers and thinkers whose work has long survived them: Milton Friedman, Friedrich Hayek, Joseph Schumpeter, and—the father of them all—Adam Smith. (And thanks, of course, to Paul Krugman and Frank Rich, both never-ending sources of inspiration.)

  The staff at Sentinel has been a joy from start to finish, and I’m grateful beyond words that this book has been in their care: Thank you, Adrian Zackheim, Jillian Gray, Amanda Pritzker, and Will Weisser—and thanks to my representatives at William Morris Endeavor, Eric Simonoff and Ari Emanuel, for brokering this particular match.

  Most of all, Blake and I are grateful to the rest of our family: Janie, Chris, Preston, Suzanne, and Margaux Scott; the Kernen dogs, Reagan and Pongo (and Rudolph, the Russian tortoise who will outlive all of us); and most of all to son and brother Scott and wife and mother Penelope. Not only could we not have done it without you; we wouldn’t have even wanted to.

  Joe Kernen and Blake Kernen

 
; Notes

  CHAPTER ONE: JANUARY 2009: THE PROGRESSIVE SLOT MACHINE

  6 “accelerate the desirable process”: John B. Parrott, “Obama and Herbert Croly,” American Thinker, March 27, 2010.

  6 “Don’t go into corporate America”: Byron York, “Michelle Obama: “Don’t Go into Corporate America,” National Review, February 29, 2008.

  6 “I, like most of the American”: Julianna Goldman and Ian Katz, “Obama Doesn’t ‘Begrudge’ Bonuses for Blankfein, Dimon,” Bloomberg BusinessWeek, February 10, 2010.

  8A study by the Federal Reserve: Sam Allgood, et al. “Is Economics Coursework, or Majoring in Economics, Associated with Different Civic Behaviors?” Federal Reserve Bank of New York Staff Reports, no. 450, May 2010 (available at http://www.newyorkfed.org/research/staff_reports/sr450.pdf).

  9 “lower interest rates”: Joe McGowan, “Signs of Trouble,” Time for Kids, January 23, 2008.

  13A professor of psychology and economics: Joseph Henrich, et al. “In Search of Homo Economicus: Behavioral Experiments in Fifteen Small-Scale Societies,” AEA Papers and Proceedings 91, no. 2 (May 2001): 73–78.

  14 “When the greater part ”: Peter J. Dougherty, Who’s Afraid of Adam Smith?: How the Market Got Its Soul (New York: John Wiley, 2002).

  CHAPTER TWO: FEBRUARY 2009: THE ABCS OF THE FREE MARKET

  16 “way too gullible”: Jeffrey Miron, Libertarianism from A to Z (New York: Basic Books, 2010).

  16 “In 1922, when the U.S. gross”: Galbithink, “Annual U.S. Advertising Expenditure Since 1919” (available at http://www.galbithink.org/ad-spending.htm).