Friday, October 28, 2011

Insuring Predictable Events Predictably Increases Cost of Healthcare

There's a very simple reason why America's healthcare costs continue to soar:  TOO MUCH INSURANCE.

Insurance is meant to protect us from the cost of UNEXPECTED occurrences like getting cancer, breaking an arm or getting hit by a car.  Society insures things that don't happen to everyone--unexpected occurrences--so that their cost is reduced for the person who is actually affected.  But is death from old age unexpected?  Of course not, yet an extraordinarily large portion of the nation's healthcare expense occurs in the very short time period immediately before that point.  Why?  Because insurance enables us to use other people's money to pay for it!  The trouble is, those other people are doing the same thing!  My question to you is, how much would you spend of your own money for an extra week of Grandma's time?  Or better yet, how much would Grandma want you to spend?  I'm guessing that you would spend more than Grandma but that you wouldn't spend your family's last cent.  Insurance throws that question out the window:  you spend all of my money and I spend all of yours, and together we go bankrupt while insurance company executives buy vacation homes.

Similarly, imagine how much an oil change for your car would cost if it were covered by insurance.   Seven layers of bureaucrats (exaggeration) would have to be hired to manage the paperwork!  The same analysis applies when we pay for our annual physical or dental cleaning--which are entirely predictable--with insurance.  Why would we do something so stupid?  Because most of us get our insurance from our employers, who are able to deduct the cost from their tax bill while we as individuals cannot.  What this does is encourage us to get as all-encompassing a policy from our employer--like one that covers annual checkups--as possible.  Of course that distorts the cost of a doctor's visit since half the people they employ are in collections!

Both death from old age and annual checkups are entirely PREDICTABLE events and insuring them PREDICTABLY results in higher medical costs and insurance company profits.  The answer to rising medical costs is not to insure MORE events--it's to insure LESS!  Doing so also might encourage a little more personal responsibility--like better eating, more exercise and weight loss.  Of course, why do those things when--as things are currently--someone else picks up the tab?

Wednesday, October 19, 2011

Income Disparity Simplified

To President Obama and OWS:

Income disparity in a nutshell:

1.  When the cost of running/starting a business increases, fewer businesses remain/are started.
2.  With fewer businesses, there is less overall demand for employees.
3   With less demand for employees, employees income declines.
4.  With fewer businesses, existing businesses face less competition.
5.  Less competition means that remaining businesses can raise their prices.
6.  Higher prices and lower wages mean more profits for the owners of remaining businesses.
7.  Lower wages to employees and higher profits for owners means increased income disparity.

Now let's reverse the process:

1.  When the cost of running/starting a business decreases, more businesses remain/are started.
2.  With more businesses, there is more overall demand for employees.
3   With more demand for employees, employees income rises.
4.  With more businesses, remaining businesses face more competition.
5.  More competition means that remaining businesses must lower their prices.
6.  Lower prices and higher wages mean less profits for the owners of remaining businesses.
7.  Higher wages to employees and lower profits for owners means reduced income disparity.


So, the net-net is that anything that increases the cost of running/starting a business (say Obamacare, 10 years of wars,...etc.) increases income disparity and increases prices and anything that reduces the cost of running/starting a business will reduce income disparity and reduce prices.  With that in mind, it should be noted that practically everything the Occupy Wall Street crowd and our President would like to impose on the rest of us would increase the cost of running/starting a business so much that income disparity in the United States would eventually be expected to resemble that of the Soviet Union and Communist China, where party bosses lived like Kings and the rest like serfs.  [Granted, with the huge income disparity already seen in America, that may not seem like much of a change but at least no one is standing in line for toilet paper yet.]

Wednesday, October 12, 2011

The Journey Back to Prosperity

In the current environment, the likelihood that the United States turns its ship around and re-embraces the Reagan message of smaller government and greater individual freedom and responsibility is nil; long-term unemployment will change the mind of even the most ardent Tea Party-er as to the benefits of Big Government.  That being the case, I've been asking myself what actions the President could actually take to put us back on the right path, that is to increase employment and economic growth, and have the support of both Democrats and Republicans--or at least enough of them to get the actions passed.  The following would be my initial suggestions:

1.  Bring ALL American combat troops home.  Too many Americans have died in an unwinnable war against an idea.  Victory in the first Gulf War was easily defined--purge Saddam Hussein from Kuwait.  The same is not true in Afghanistan.  Bush and Obama have flushed a fortune down the drain on 10 years of war and its time for it to stop.  After 9/11 the country was in shock; taking offensive action was the easiest course--but it was the wrong choice.  If we wanted to protect our nation from future attack, spending a fraction of that money on actual defense (i.e., at the borders, ports, in our cities,...etc.) would have been far more productive and would have given us lasting security.  As it is, for all of our offensive forays we are still vulnerable.  Have the wars made us safer?  Maybe, but not as safe as we should be.

2.  The Army Corps of Engineers ("ACE") should be engaged to develop ALL major energy resources on public lands.  Franklin Delano Roosevelt put Americans back to work on a myriad of public infrastructure projects that were needed.  More important to the country right now, though, than whether new highways are built is energy security and wasting money on uneconomic sources like solar and wind is ill-advised.  The ACE could work with American energy companies to engage many of the unemployed to work on this project.  The lower energy prices which such a program would produce would benefit everyone in the world and lead to significant job creation as we stop sending our money to the Middle East (which has then, historically, funneled a portion of it to terrorist organizations) and spend it at home.

3.  Throw out Obamacare.  Providing healthcare to all Americans is expensive and will only get more expensive under this legislation.  What we should be concerned about is the cost of care, not insurance.  If every American is to have access to care, let's make it happen without enriching the insurance companies who have continually shown a willingness to cheat consumers.  Insurance is supposed to be about covering unforeseen occurrences.  Annual checkups and the like are entirely predictable and should be outside of insurance coverage.  [Insurance companies actually love to cover certain events since they know exactly how much they will cost and then only have to add a profit when they calculate the premium.  Insurance is about risk-taking and there is no risk when covering certain occurrences.]  Take insurance companies out of the equation and develop a pervasive system of free clinics to handle routine check-ups and procedures.  Exempt doctors who are employed in these clinics from malpractice unless there is gross negligence and pay for the education of all medical students subject to working a term (say a minimum of 4 years) in the clinics.  [The same type of system can be developed for emergency and major medical though on a smaller scale because fewer occurrences can be expected; doctors would get the same deal--eliminate malpractice (except for gross negligence) and eliminate the insurance middle-man.]  Unlike Obamacare, which gives doctors no reason to come to work (and will drive many from the profession due to the significant restrictions on their pay), this plan would eliminate much of their stress and relieve them of financial burdens, encouraging more of them to continue practicing and many more to become doctors in the first place.  [The ridiculous thing is that at the time Obamacare was passed everyone already had access to emergency healthcare, it's just that people with insurance were subsidizing those without.  Obamacare basically requires everyone to get insurance that covers everything (including certain events) and if they can't afford to do so the government will subsidize it--by taking money, essentially, from the people with insurance, yielding no real change except that government has more control.  Ironically, the only thing that kept the cost of insurance under a semblance of control was that people without insurance couldn't get non-emergency care for free.  By releasing millions of additional people upon general practitioners who don't exist, Obamacare was a recipe for the huge price increases already being put through in anticipation by insurance companies.]

There are many more actions that could and should be taken to put the country back on the path to prosperity, but these are three with which I would start.  Stopping the wars and bringing our soldiers home would boost the country's morale and significantly reduce our spending.  The money freed up by doing so could then be spent developing our resources, a project that would have a lasting benefit and employ many of the unemployed.  Lower energy prices would ripple through the economy, leading to the employment of even more.  Replacing Obamacare with an improved public health system would accomplish the goal of healthcare and would reduce costs by encouraging more men and women to take the Hippocratic Oath.  None of these actions would require tax increases or spending cuts.

I may be fooling myself in thinking that both Democrats and Republicans could agree to any of these suggestions.  But at some point something has to give.  A journey of a thousand miles begins with a single step.  Its time to start walking.

Friday, October 7, 2011

Spending is THE Problem

Possibly the greatest miscalculation ever made by Republicans was the idea championed by Ronald Reagan and Milton Friedman that by reducing taxes, rational forces would take hold and cause government spending to decline.  Those two men realized that the increasing size of the government trampled on individual rights, limited economic growth and would, unless checked, eventually lead to collectivism, which has resulted in declining standards of living whenever it has been tried.

What Reagan and Friedman failed to realize, though, is that there is more than one way to feed the Beast.  The debt markets' insatiable appetite rendered their method moot--so long as the government could sell bonds to cover any revenue shortfall, cutting taxes would have no impact at all on government spending.

While Reagan was able to slow Leviathan's growth, he could not stop it completely, let alone reverse it.  After Reagan, the Republican understanding that the size of government is the problem and that the success of tax cuts was dependent on follow-on spending cuts, somehow was transmuted into a belief that lower taxes on their own would spur economic growth.  George W. Bush clearly didn't understand that cutting taxes without cutting spending was a recipe for disaster since it would yield no net increase in the capital available to grow the economy--government just sucked the proceeds of the tax cut right back up on the debt markets.  Furthermore, by significantly increasing the government's spending--primarily on the Iraq and Afgan wars--he only made things worse.

The problem, as Reagan and Friedman discovered, is that its really hard to take something away once it has been given.  It's easy to cut taxes when you control both houses of Congress.  But cutting spending is almost impossible.  [Even now under President Obama all of the talk of spending cuts is a fraud.  The only thing proposed to be cut is the rate that spending grows.]

So Reagan and Friedman put the cart before the horse in thinking that responsible parties would prevail.  They realized that government spending was the problem but tried to indirectly finesse the issue by taking away its fuel through tax cuts rather than face it head on.  Their vision failed because they had no concept that the United States could continue to operate in such a fiscally irresponsible manner even if its revenue was constrained.

Cutting taxes only makes sense when it is combined with spending cuts; cutting taxes without cutting spending is a recipe for disaster.  Unfortunately for the Left, using the same understanding of money and capital flows, it is also clear that their prescription, increasing taxes without cutting spending, would be just as bad, as any purported impact on the budget deficit would be negated by the impact on the economy.  There is no getting around the fact that the size of the government is the problem.  Whether it is funded by taxes or debt is largely irrelevant.

Thursday, October 6, 2011

"Educated" Wall Street Protesters

Nationwide Americans have swallowed the notion that a college education is necessary for success in life, a notion fed to it by the education establishment and promoted by the government, which numbers as one of its largest supporters the education establishment!

How do the supposedly educated people protesting on Wall Street not see or question this conflict? Did none of them wonder what they were going to do after graduation with a degree in Sociology or English and $150k in debt? Was there any thought involved when they decided what and where to study?

Why would any bank lend money to them for such ill-conceived investments? Here's a clue: for the same reason that so many unqualified persons were able to purchase homes they could not afford--the government guaranteed the loans. So, just like with the housing crisis, banks threw judgment out the window when they lent them money, since the banks had no risk. When banks lend money to a business they consider whether it is strong enough to pay them back. Did the banks that lent the protesters money even ask what they were majoring in?

The key to capitalism is that capital acts rationally in its determination of where it is allocated. When the government gets involved you end up with dislocations--in the form of soaring tuitions and housing prices. The system being protested is certainly not capitalism, and calling it that only shows shows how completely the protesters been taken by the double-speak of the Left.

So to all these kids protesting that they can't afford the loans they took out for their liberal arts degrees (my guess is that there aren't too many engineering students in that crowd), I say you have been fooled into thinking that no price is too high for an education, though its clear that many of you now understand that not  to be the case.  

Wednesday, October 5, 2011

On Innovation and Income Disparity

(another excerpt from the past)

The costs of implementing, enforcing, and complying with every government action are significant.  Any tax on businesses or individuals, any social program, any regulation that mandates safety or health benefits, any environmental legisla­tion, any action at all has the same effect.  The costs of these actions are borne by businesses, as well as by everyone who relies on being employed by business or on the products created by business--i.e., by all members of society.  Any business which cannot support the higher level of costs will fail. Any prospective business which is unable to earn the higher rate of return that is re­quired because of the increased cost level will never even be created.                       
            
As the number of business failures rises, a nation's total output must fall.  This reduction will result in higher prices for those goods still available.  The cost of government actions to offset these price increases (e.g., cost of living increases for retirees and government employees, unemployment compensation) will speed the decline.  
            
By reducing the number of viable enterprises, the cost of every government action reduces the amount of competition faced by a nation's remaining businesses.  Competition, however, supplies the pressure which prompts the innovations that any society requires to manage its scarce resources.  Without this pressure, enterprises are allowed to continue using inefficient processes.  By increasing the costs which businesses must bear in order to survive, governments effectively reduce the number of new technologies which can be afforded, technologies that would have improved the living standard of its citizens.  When the evolutionary pressure of competition is completely checked, innovation will stop and society will deplete its usable  resources. 
            
The problems which plague a nation will worsen as the competition faced by its industries decreases and the investment they make in innovative technologies declines.  Government's predictable reaction--to further its "resolve" by implementing additional mandates--will only make matters worse.  This is the vicious cycle which is already being experienced in the socialized nations of the world.
            
As the socialized economy spirals downward, the nation's wealth will become concentrated in a small group of citizens--the owners of those businesses which are still able to cover the high costs that government imposes upon them.  As the cost level rises, fewer and fewer of these businesses will survive, concentrating the wealth even further. 
            
Fewer businesses mean fewer jobs, thereby increasing the competition for those jobs that remain--and forcing the nation's wage level ever lower.  The citizens of a socialized nation, whose purchasing power declines due to rising prices, will find that their earnings follow the same downward path. 
            
This cycle will result in an accentuated disparity between the ever-decreasing number of the extremely rich and the ever-increasing number of the extremely poor.  The so-called "dichotomy" between rich and poor is an inevi­table result of the costs which government imposes on the crea­tion of opportunity, and will only worsen as government's scope of influence grows.  [In a nation which does not limit the opportunities of its citizens a normal distribution of earnings can eventually be expected;  every time the rate of return required by businessmen is reduced their incomes will decline as well.  At the same time, by increasing the demand for laborers, reductions in the required rate of return act to increase the wages businessmen must pay.  Any limitations whatsoever will increase the required rate of return and skew the distribution, reducing the number of affluent citizens and increasing the number of impoverished ones.]