New York, Capital Of Crony Capitalism

Our governor Andrew Cuomo seems to be cruising to easy re-election next year, but that doesn't stop him from going on a record-breaking binge of crony capitalism.   Can we even keep track of all the handouts to non-needy businesspeople?  Well, let's start a list:

Regional Economic Development Councils.  On December 11, the governor announced grants of $715.9 million of state taxpayer funds as this year's installment for these regional councils.  Here is the press release.  How are the state government geniuses able to out-guess the market as to which will be the successful businesses?

[A]s part of the Round III process, a Strategic Implementation Assessment Team composed of state agency commissioners traveled to every region of the state to view progress on projects that have received state funding, assess the regions’ strategic plan implementation, and review priority projects endorsed by the regions in their 2013 applications.

Clearly the investment bankers at Goldman Sachs are no match for the acumen of this assessment team.  This is an annual program, so expect roughly the same amount of handouts again next year and every subsequent year.

To put the $715 million in perspective, it is more than 1% of annual state tax revenues (that are projected at about $69 billion for 2014), and about 0.8% of the state-funded portion of the entire state budget.

START-UP NY.  Then there is the big program of tax exemptions for so-called "start up" businesses.  This one is advertised all over the airwaves at night.  Off-budget of course, so there's no way to get a handle on how much it costs.  You don't have to start up from scratch -- "adding jobs" will do the trick.  The exemptions apply to business taxes, property taxes, sales taxes, and even the personal income taxes of employees.  You are a successful long-time New York business just struggling to keep going in this high tax environment?  Too bad, you don't qualify.

NY-Sun Initiative.  No politically correct program of crony capitalism would be complete without massive handouts for wealth-destroying renewable energy projects.  Crain's New York Business reports today that New York is "finally" giving a push to solar energy after years of lagging the lights of Vermont and Massachusetts. 

NYSERDA said that as of the end of this year and several rounds of awards, 299 megawatts of solar power had been brought online or were in development through NY-Sun. A total of $126 million for 184 projects was awarded this year, the authority said.

Where does the money come from?  "Mostly through assessments on utilities."  In other words, through jacking up your electric bill to get the same energy that would be available elsewhere for less.  Today we had barely 7 hours of sunlight and even that was totally obscured by heavy overcast and rain.  Well, it's a good thing that we had a full back-up fleet of fossil fuel energy projects in place.

Fracking?  Here's something the private sector is eager to do with no need for subsidy or tax break.  In other words, it would create rather than destroy wealth.  But in New York, that is forbidden.

The bottom line is that for a few billion taxpayer dollars a year we create a dependent class of government crony business people who destroy wealth but can be counted on to give back in political contributions to their paymasters in Albany.  Meanwhile the upstate areas that get all these grants and exemptions continue their long-term economic decline.

Amicus Brief Filed In Utility Air Regulatory Group v. EPA

Several weeks ago I was honored to be asked to help write an amicus brief for the Supreme Court in UARG v. EPA on behalf of a group of scientists and economists and in support of the cert petitions of Southeastern Legal Foundation and a group of states led by Texas.  The petitioners ask the Court to vacate an EPA rulemaking in which EPA found that because it had determined that CO2 is a "dangerous pollutant," now it must institute a permitting regime for so-called "stationary sources" that emit CO2, which include things like power plants and factories.  The rulemaking is part of the Obama administration and EPA campaign to restrict and reduce all carbon-based energy and, it seems, to eliminate coal from the economy entirely.  EPA claims to find a basis for its rulemaking in Clean Air Act amendments dating from 1977, although nobody had previously thought that these provisions had anything to do with this subject matter, and even though there have been many unsuccessful attempts in Congress in the intervening time to pass legislation restricting carbon-based fuels.

We filed the brief last night, and it is publicly available today.  It's not up yet online at the Supreme Court or the ABA site, but can be found at ICECAP here.  I'll update this post with a better link when I find one.

Meanwhile, you might enjoy a few quotes.  From the introduction:

Unlike other “pollutants” subject to the CAA, CO2 is not some incidental impurity or imperfection in the processes of civilization, but rather is fundamental to all processes of life and equally fundamental to the large majority of energy generation that drives our and the global economy. The emission of CO2 from stationary sources occurs in the processes by which the large majority of our electricity is generated; in the heating, cooling and lighting of our homes, offices, schools, hospitals and stores; in our use of computers and the internet; in the production and preparation of food; and in nearly everything else we do. Under the guise of a technical statutory interpretation, the EPA now asserts it has discovered a central role for itself to control and dictate all aspects of our lives under an over 30-year-old statutory provision never previously thought remotely to cover this subject matter.

While the merits briefs of the petitioners took on technical arguments of administrative law and statutory construction, our amicus brief also addresses the fake "science" by which EPA has claimed to find that CO2 -- the gas that gives rise to all life -- is a "dangerous pollutant":

The entire hypothesis on which EPA has purported to find that CO2 emissions supposedly “endanger” human health and safety has been falsified by real world evidence.  As the most important example, EPA asserts as its central “line of evidence” for CO2 “endangerment” that CO2 will warm the surface temperature of the earth through a mechanism by which rising CO2 concentrations in the troposphere in the tropics block heat transfer into outer space.  See 74 Fed. Reg. at 66518 (Dec. 15 2009).  If this theory were right, there would necessarily be an observable “hot spot” in the tropical upper troposphere.  But this tropical “hot spot” has been proven not to exist.

And finally, we addressed the most shocking aspect of EPA's carbon-restriction program, which is the intent to impoverish the people, and particularly poor people, by increasing the price and limiting the availability of cheap carbon-based energy:

If EPA succeeds in limiting the availability of hydrocarbon based energy and raising its price, it is not the rich who will be priced out of purchasing the energy they need.  It is the poor.  Cheap carbon-based energy from stationary sources means that relatively low income people in this country can afford, for example, to heat, cool and light their homes, cook meals, use the internet, talk on cell phones, buy products like automobiles made of inexpensive steel and other metals.  If the lowest cost energy available is unwisely restricted, all Americans will suffer greatly, but the poorest the first and the most.

This rulemaking by the EPA is a massive power grab that deserves far more attention and push back than it has gotten so far.  But maybe our brief will mark at least one small step forward in countering the global warming hysteria.

My clients are too numerous to list here (the full list is in the brief) but include the likes of Joe D"Aleo (of the excellent ICECAP.us web site),  Craig Idso (who has done excellent work on the benefits of CO2 in the atmosphere and runs the co2science.com website), Harrison Schmitt (the former astronaut and Senator), George Wolff (former chair of EPA's clean air scientific advisory committee), and economist James Wallace.

So far I have seen links to our brief at icecap.us, wattsupwiththat.com, and climatedepot.org.  Many thanks for those.  I'm sure there will be more.

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Update On The War Against The Economy

Five years into the Age of Obama, and the economy continues in the doldrums.   The unemployment rate supposedly has come down from its peak of 10% in 2009 to 7% in the latest report, but over that same period the labor force participation rate has fallen from almost 66% to just 63%.  Those two more or less offset each other.  The bottom line: It’s a bad time to be looking for a job, and particularly to be a young person trying to start a career.

It seemed in the past like the economy always rebounded rather rapidly from these dips.  Why not this time?  Actually, the economy has not always rebounded rapidly.  There was one other time when it did not, and that was the Great Depression, when the slump dragged on for a decade.  That was the time when the government thought it was a good idea to force all industry into cartels (NIRA), when it systematically destroyed crops to force food prices up, when the Wagner Act led to waves of strikes in the auto and other industries, when income taxes shot up, and when Roosevelt railed against “malefactors of great wealth.”  In short, the government conducted a War Against The Economy, and predictably, the economy retreated.

And now we have the new War Against The Economy, with the similar results.  You probably aren’t following all the many fronts in the war, so I’ll put it together for you.

Energy.  With the energy sector accounting for about 8%+ of GDP, Obama has loaded up the EPA with zealots who think they are going to “save the planet” by driving up the cost of energy, making it scarce and unavailable, and impoverishing the American people.  Proposed regulations from the EPA effectively make new coal power plants illegal.  Separately EPA has declared the life-giving gas CO2 to be a “dangerous pollutant” and has announced that it intends to require anyone building a major emitting source (e.g., factory, oil refinery) to beg for a permit.  Thousands of coal miners have been thrown out of work.  Shall we build the Keystone pipeline to bring cheap Canadian hydrocarbons into the country?  Forget about it.  Meanwhile over at the Department of Energy they waste billions on uneconomic, wealth-destroying “green” energy projects.  The list of bankrupt recipients of federal loan guarantees is long (Solyndra, Abound Solar, Beacon Power, Fisker, etc.), but the bigger scandal is endless tax benefits to crony capitalist wind and solar energy producers.

Obamacare.   Healthcare is close to 16% of GDP.  Government micromanagement of one-sixth of the economy cannot help but suppress economic activity.  This law is riddled with perverse incentives.  Keep a worker’s hours under 30 per week and you can avoid the “employer mandate” as to him.  Keep your total number of employees under 50 and you can avoid the employer mandate altogether.  Consensual transactions for healthy people to purchase inexpensive insurance are now illegal.  Doctors are subject to numerous restraints. 

Government overspending and debt accumulation.  Our President has completely fallen for the fallacy that government spending adds to GDP dollar for dollar without any offsetting costs.  Actually additional government spending replaces productive economic activity with unproductive and wasteful economic activity.    In Obama’s first year of 2009 government spending shot up by over $500 billion, most supposedly as a one-time “stimulus,” but then the spending never went back down, even as the foreign wars wound down.  The cash-basis accumulated debt is now around $17 trillion, but the accrual-basis accumulated deficit is more like $100 trillion, and hangs like a sword of Damocles over the economy.  The Administration makes no efforts at all to deal with the long term entitlements problem.

Finance.  Dodd-Frank is a Frankenstein monster of endless new regulations imposing massive new costs for no possible benefit.  Armies of regulators (can anyone actually give a complete list of all the federal agencies now overseeing the financial industry?) fervently believe that they are so all-knowing as to be able to foresee and prevent the next bubble and crash.  Meanwhile they have no comprehension at all of the economic benefits of risk allocation through financial markets.  Various financial derivatives are outlawed; InTrade is shut down; the Volcker Rule goes way over the top; and Fan and Fred continue merrily in business lowering credit standards just like they did the last time and using the federal infinite credit card to blow up the next big bubble.  Today’s Wall Street Journal reports that the feds are busy behind the scenes readying to apply bank-type regulation to asset managers, so get ready for your mutual fund fees to soar.  And the prosecutions of the big banks over nothing go to ridiculous ends, the most recent being the criminal probe of JP Morgan for failing to uncover and stop Madoff, said to be nearing a $2 billion settlement.  Oh, plus of course a federal monitor to impose huge new additional costs, undoubtedly to be paid by the tooth fairy.  So is there a criminal probe of the SEC for failing to catch Madoff, despite having subpoena power and having sent people multiple times to inspect his books and records?  Actually, nobody there was so much as fired.

Taxes.  And add a round of tax increases for good measure.  You may think tax increases are a good idea, but I don’t know of anyone who doesn’t recognize that they suppress economic activity at least a little.

These are not little issues.  With government intentionally attacking economic activity in so many major areas, is it any wonder that the economy languishes?  Funny thing is, I don’t think that Obama or anyone in his administration has any idea that there is a relationship between government prevention and suppression of economic activity on the one hand and poor economic performance on the other.   When a new administration finally eases up on the economic suppression and the economy takes off, these guys will forever maintain the narrative that the economy was actually “rescued” by their overspending.  And some will believe it.   

"Income Inequality" And Fraudulent Government Economic Data

The government's use of fraudulent economic data to promote its own growth proceeds apace.  The new state-of-the-art is the trendy "crisis of income inequality."  Bill de Blasio showed how it's done by making this "crisis" the centerpiece of his recent hugely successful campaign for Mayor of New York.   A few days ago, Barack Obama jumped on the bandwagon, declaring income inequality to be "the defining challenge of our time."  Then Obama and de Blasio got together with a bunch of other newly-elected mayors in Washington on Friday for a big income inequality confab.  Hey, the public seems to be buying it, so why not?

And then we have the New York Times all last week running an endless five-day, multiple-full-pages-every-day, billion-word, "Hey Pulitzer guys look at us over here!!!!!" piece by Andrea Elliott on the struggles of a teen aged girl growing up poor in the gentrifying neighborhood of Fort Greene, Brooklyn.  The income inequality theme was pervasive, but reached a crescendo with Wednesday's installment, "A Neighborhood's Profound Divide."  How do they demonstrate the "profound divide"?  Yes, with obviously deceptive government income data.  Here is an excerpt:

She routinely walks past a boho-chic boutique on Lafayette Avenue where calfskin boots command $845. Heading north, she passes French bulldogs on leashes and infants riding like elevated genies in Uppababy strollers with shock-absorbing wheels. Three blocks away is an ice cream parlor where $6 buys two salted-caramel scoops.  Like most children, Dasani is oblivious to the precise cost of such extravagances. She only knows that they are beyond her reach. . . .  Such perceptions are fed by the contrasts of this neighborhood, where the top 5 percent of residents earn 76 times as much as the bottom quintile.

"The top 5 percent earn 76 times as much as the bottom quintile."  Wow!  That's quite some inequality!  Or is it?  Actually, it's completely fraudulent.  The only question, as usual with the Times, is whether they are in on the fraud and using the data for the own intentional deception of their readers, or whether they have themselves been fooled by the government's fake data.  Neither option is good.

What is the real income differential between the bottom quintile and top 5% in gentrifying areas of Brooklyn?  My estimate would be not a factor of 76, but rather a factor of 2 or 3 at most.  And for some families deemed "poor" by government data, definitely including the family that is the subject of the Times piece, it is likely that their income honestly measured would put them in the top 20% rather than at the bottom.

Why do my calculations differ from those of the Times?  Simple.  The Times relies on data from the Census Bureau that measures what they call "income."  Under Census Bureau definitions, "income" is (1) pre-tax, and (2) pre-handouts.  If you just take account of taxes and handouts, the Times's 76 times factor quickly goes to my 2 to 3.

Now think about this for a minute:  Haven't our progressive taxation system and benefit programs for the poor been put in place precisely to address the issue of income inequality?  Could it really be that our government takes the progressive taxes and pays out the benefits and then purports to measure "income inequality" as if none of this had ever occurred?  Yes, that is exactly what they do.  And worse, the likes of de Blasio and Obama are now proposing to solve the income inequality problem by yet more progressive taxation and yet more benefits, without ever mentioning that none of that counts at all in the measures of inequality.

Let's apply this to the specific Census data from Fort Greene, Brooklyn.  Here is the closest I can find on the Census Bureau website to the data the Times appears to be relying on from zip code 11238, Fort Greene.  (You need to input the 11238 zip code to get the Fort Greene data.)  They don't draw the exact lines the Times draws, but these data do show that 22.6% of families in the 11238 zip code have incomes of $24,999 and down, while 5.8% of families have incomes of $200,000 and up.  Hard to say how Ms. Elliott derived her "76 times" from that, but the 1,318 households in Fort Greene with the $200,000 + income could well include a few multi-million dollar earners.  If you assume that the average income of that bottom 22.6% is around $12,000 and the average of the $200,000+ group is $400,000, you could get a factor of about 33.  Maybe that's close enough for government work.

Now, apply income taxes.  The $400,000 average family of the top 5% is going to lose about a third of that off the top to federal, state, local, and FICA income taxes.  The $400,000 becomes $267,000.  The $12,000 family gets a refund of about $5000 from the EITC.  The $12,000 becomes $17,000.  Suddenly the factor of 33 between the two has become less than 16.

Now let's count up the handouts.  The family that is the subject of the Times piece lives in a homeless shelter.  According to New York City data here, it costs the city on average $100.74 in 2013 to house a homeless family for one day in a shelter.  That's $37,000 per year.  Medicaid costs over $10,000 per year per beneficiary in New York.  That's $40,000 for a family of four.  Food stamps for a family of four at this income would be about $8000 per year.  Free cell phones add another at least $3000 per year.  We're well over $100,000, and we haven't even considered whether this family gets a cash welfare grant.

The ratio between the $267,000 after tax of the "top 5%" family and the $100,000+ combination of income, EITC and handouts for the "bottom 20%" family is between 2 and 3.

By the way, the family that is the subject of the Times article is a family of ten.  Their Medicaid benefits alone cost the taxpayers well over $100,000 per year.  Their shelter, which may well be squalid, undoubtedly costs the taxpayers well in excess of the $100 per day average for a homeless family.  They clearly get a lot more than $8000 in food stamps.  This family is likely costing the taxpayers more than $150,000 per year, and perhaps as much as $200,000.  How much of it counts in the government's "income inequality" statistics?  None.  They may not be able to buy an $845 pair of boots, but in overall use of resources they are consuming as much or more than many families deemed by the government to be in the top 5%.  Why can't we recognize that fact?

So what remedies were proposed at the big White House confab to fix the income inequality?  The big two were an increase in the minimum wage, and universal pre-K.  An increase in the minimum wage will clearly increase, rather than decrease income inequality as measured by the existing statistics.  Reason:  by making additional people unemployed, it will add zero earners at the bottom of the income scale.  Zero earners make the multiple between the lower and upper income tiers soar.  Universal pre-K?  If you believe it works to reduce income inequality (I am a skeptic) its effect will be measurable 20 years from now, if at all.  So go ahead and implement these programs, and, if you want, add other new handouts.  They will not decrease measured income inequality.  The only way to decrease income inequality as measured by the current data is to get rid of the high earners.  How can that be a good idea?

You can be sure that when the current round of proposals is enacted and yet measured income inequality somehow goes up again, the likes of Obama and de Blasio will be back with the same fraudulent data advocating for another round of counterproductive remedies.  There will only be a hint of honesty in this process when they start publishing and using post-tax, post-handout income data.  Don't count on that ever happening.

[Originally posted December 13, 2013.  Updated December 15, 2013.]

In Greenwich Village We're Against Everything

Those who have read my "About" page know that one of the aspects of Greenwich Village orthodoxy that I find odd is the tenet that "the current built environment is optimal and all attempts to change it in any way must be opposed at all costs."  It's been a while since I've given an update on that subject here.

The big news in the Village is that two new condo buildings are in the process of going up.  One is on Charles Street down by the Hudson River, and the other is on the former site of St. Vincent's Hospital on Seventh Avenue between 11th and 12th Streets.  Both are rather large:  150 Charles Street has close to 100 apartments, all of large size, and the other one, known as Greenwich Lane, has close to 200.  And they are really expensive.  The web site for 150 Charles Street shows no more apartments available -- it's completely sold out! -- but according to this article on Curbed from July, they got an average of more than $3000 per square foot.  That means that they got something close to $1 billion for the building.   Here is a list of availabilities at the Greenwich Lane -- they're looking for over $3000 psf as well.  $3000 psf means about $3 million for a typical two-bedroom apartment.  But if that seems a little cozy to you, they have a townhouse at the Greenwich Lane for $25.25 million.  There have also been reports that the penthouse atop 150 Charles has sold for $34 million.  Mind you, this building is still a year plus away from completion.

In case you want to get a look at either of these buildings, try their websites.  150 Charles is here, and the Greenwich Lane is here.

And what is the reaction of Greenwich Village to the coming of these two super-high-end buildings.  Why, of course, outrage!  Multiple lawsuits have been filed trying to stop 150 Charles, and the New York Post today reports on yet a new one.  Or check out this 11 minute video put together by some of our angry neighbors a couple of years ago.  Meanwhile the Greenwich Lane makes Villagers' blood boil even more, because it is on the site of the former hospital.  But the opportunities for lawsuits have been less since the site was acquired by the developer at an auction in the Bankruptcy Court -- not much you can do about that.  Still, literally every candidate who ran for office in the last election swore that they would have fought harder and somehow saved the hospital and prevented the condos.   Here is my article on that subject, and below is my picture of Bill de Blasio as a candidate swearing his eternal opposition to condos replacing hospitals.

Am I the only one who thinks it's odd to fight to the death to prevent new high end development?  Other places where I have lived would have killed to have someone want to build such a building in their town, let alone to have people willing to pay these prices prepared to move in.  That's how taxes get paid!  As one example, New Haven, Connecticut, has spent decades trying to get someone to invest in their downtown area, with remarkably little luck.  Same for my childhood home town of Poughkeepsie, New York.

What is it about the Village that makes many of us hate new development so much?  One hypothesis is that it's just a form of snobbishness -- we're so superior to others that we don't want these tacky nouveaux riches moving in with their tasteless new buildings.  I also have another hypothesis, which is that rent regulation has a lot to do with it.   It is very noticeable that people living in rent regulated apartments (which still is around half of the people in the Village, plus or minus) are among the strongest opponents of new development.  In my observation, they tend to perceive new development as a threat.  The new development is always and inevitably high priced, which, I suppose, gives their landlords an even greater incentive than they already had to try to get rid of them.  Given the incentives that they face, it appears that the best thing for the rent regulated tenants would be for the neighborhood to have no new development and no upgrading at all, and just fall into gradual decline and decay.

Needless to say, homeowners such as yours truly have a somewhat different perspective.  But you don't see anyone in the Village publicly speaking out and saying that rising property values are a good thing.

What Is The "Plan" To Replace Obamacare?

The official prediction here is that Obamacare will inevitably fail because it is based on the flawed premise of attempting to compel people to behave contrary to their own economic self-interest.  Of course, what we don't know is whether Obamacare will fail quickly or slowly.  Medicare and Medicaid are failing slowly, and the only respect in which they ask people to behave against their own economic interest is by paying taxes.  By contrast Obamacare asks people to go through enormous effort to purchase a hugely complicated product often priced at double or triple fair value.  There are lots of ways for a citizen to take evasive action.  So I'm predicting much quicker failure.  In any event, it's not too early to start asking the next relevant question, namely, what next? 

A frequent talking point of the Obama house media is that the opponents of Obamacare "have no plan" for what to replace it with.  For example, from Think Progress on June 29 we have:

More than two years after Obamacare passed, a longtime Republican congressman admits that his party has “no” plan to replace it if they succeed in getting rid of the landmark health law.

Or this from Talking Points Memo on November 18:

More than four years after initiating an all-out war to block -- and then destroy -- what they derisively labeled "Obamacare," Republican leaders remain at a loss on how they'd replace the law if their dream of repealing it should ever come true.

The implicit idea here is that it is the legitimate, and indeed necessary, function of the federal government to solve all human problems with the infinite credit card.   The government must have a plan!  As phrased in an article I linked a few days ago by Jonathan Capehart in the Washington Post, nothing short of grand government solutions to every human problem can constitute "viable alternative proposals worthy of national debate."

Well, Jonathan, my response is that grand government solutions to every human problem are themselves inevitably so deficient that they are not "worthy of national debate."  Due to fundamental limitations of human knowledge, any significant human problem can only be solved by a long-term process of trial and error involving millions of people acting in their own economic self interest, where knowledge is shared among the entire population through the process of market exchange.  If you think you can cut off the ongoing trial and error process and have a few specially smart people impose the final solution to a major problem, well, you just don't understand the first thing about how the world works.

In fact our government does not have a "plan" for producing food, or buildings, or computers, or almost any of the things you find in stores.  The processes for producing these things work fine.  The government does have at least a partial "plan" for education; and that field is screwed up.  It has a partial "plan" for financing residential housing; and that field is screwed up.  And it has a "plan" in a big way for health care; that field is really screwed up.  "Plans" are what Stalin did.  They all failed.

So as an opponent of Obamacare, I say that reversion to the market exchange system is the plan, and it's the only plan.  That system will never be perfect, but it will always be better than any grand scheme that the government comes up with.

Now we have to consider a few things that inevitably follow.  First, the demise of Obamacare is going to be messy.  What we had before Obamacare was an imperfect system badly hobbled by various sorts of government meddling, but it did solve a lot of problems (although of course far from all).  It had developed over many decades through the spontaneous processes of the market, as modified of course by the government meddling.  Now that system has been substantially destroyed.  When Obamacare fails or is repealed, the pre-existing system will not magically reappear in one day.  Something else will develop over time, but it may be years or decades.  It is critically important that the government resist the temptation, the hubris, to think it can step in and solve all the problems in one day with a grand solution.  Whatever that supposed grand solution is, it can't and won't work.

Second, if there's something useful the government might do it's to reduce or eliminate its other meddling in health care that's separate from Obamacare.  For example, get rid of the rules that prevent sale of health insurance across state lines.  Also, change the tax treatment that makes it appear advantageous for high income people to have routine health expenses paid with before tax dollars.  Outside medical care, nobody thinks it makes any sense to pay for routine expenses with "insurance," and this is the one thing that has most driven the spiraling cost of medical care.

Finally, a word about pre-existing conditions.  Sadly, it is not possible to insure against pre-existing medical conditions, any more than it is possible to insure your house against fire after it has already burned down.  Part of the fundamental deception of Obamacare is its pretension that pre-existing conditions must be "covered" and then continuing to call the product that covers them "insurance."  If the condition is pre-existing, then the product is not insurance; instead, it is income redistribution.  You may think that income redistribution is a good idea generally, or you may think it's a good idea in this particular instance, but that doesn't make this product "insurance."

Once you realize that coverage for pre-existing conditions is income redistribution rather than insurance, you will look at this problem differently.  For example, some people with pre-existing conditions are wealthy.  Why is it the problem of taxpayers, or alternatively of healthy holders of healthcare policies, to "cover" the pre-existing conditions of people wealthier than themselves?  Obamacare overall is a massive income redistribution scheme, but where the winners and losers are not the poor and the rich, but rather almost randomly selected politically favored and disfavored groups.   The young and healthy are disfavored, even though most of them are relatively low on the income scale.  Those with pre-existing conditions are favored, even though some of them are wealthy.  If there is to be an income redistribution scheme, shouldn't it be only  from the rich to the poor? 

You have a million dollar house and you decide not to buy fire insurance to save a buck.  One day, it burns down.  You just lost the million dollars.  At least as of now, the taxpayers aren't going to step in to help you.  Now say you own the same million dollar house and you decline to buy health insurance to save a buck.  One day, you find out you have a severe heart condition that will cost a million dollars to treat.  At this point you can't buy health insurance.  You are in the exact some position -- essentially, an uninsured loss has cost the value of the house.  The fundamental question is, do you have to expend the value of that house before the taxpayers are on the hook for your treatment?  If not, why should the health problem be treated different from the problem of the destruction of the property?  Under Obamacare, you get to have your medical problem paid for by young healthy people at the bottom of the income scale who can't afford any house while you keep the million dollar house.

Here's my fundamental proposition:  any government-orchestrated income redistribution should be a safety net only, should be on budget and in cash, and should go only to those who clearly demonstrate a need and for only so long as they demonstrate the need.  So-called compulsory "insurance" for pre-existing conditions violates all of these principles.