An Apple a Day Keeps Government Health Care Away

It has been a while since I've posted, but I was compelled to provide insight into the "Public Option" also affectionately known as HR 3200. The full text of the bill can be found here.

I am still in the process of reading the bill, as it is 1,017 pages long.

Here's the introduction, as stated in the bill itself:

(1) IN GENERAL- The purpose of this division is to provide affordable, quality health care for all Americans and reduce the growth in health care spending.

(2) BUILDING ON CURRENT SYSTEM- This division achieves this purpose by building on what works in today’s health care system, while repairing the aspects that are broken.CommentsClose CommentsPermalink

(3) INSURANCE REFORMS- This division--CommentsClose CommentsPermalink

(A) enacts strong insurance market reforms;
(B) creates a new Health Insurance Exchange, with a public health insurance option alongside private plans;
(C) includes sliding scale affordability credits; and
(D) initiates shared responsibility among workers, employers, and the government;tsClose CommentsPermalink


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so that all Americans have coverage of essential health benefits.CommentsClose CommentsPermalink

(4) HEALTH DELIVERY REFORM- This division institutes health delivery system reforms both to increase quality and to reduce growth in health spending so that health care becomes more affordable for businesses, families, and government.

The first thing I notice is that the general purpose is for government to "provide" health care. But that's not all -- it aims to reduce the growth in health care spending as well. After that, I expected the next sentence to mandate that gravity stop weighing Americans down.

What is wrong with the current system? As far as I can tell, the only issue that people are addressing is that the cost of medical procedures and visits to the doctor is often higher than what they would like to pay. Certainly no one *wants* to go to the doctor or *wants* to have surgery, let alone pay for it.

So what is the alternative? We know from economics 101 that if we control costs through regulation -- let's say we mandate that health care is free -- that suddenly demand rises and instead of allocating health care to those who value it most, we have to use other methods of allocation, such as first-come, first-serve, lotteries, relying on connections, etc. Health care, while it may become "cheap" becomes more scarce because it can't keep up with demand. I know what many of you are thinking, "People don't particularly enjoy going to the doctor -- how is demand going to increase?" Here's one way. Suppose that I have to bear the full costs of my decisions, good and bad, and I am contemplating taking up smoking, excessive drinking, and eating copious amounts of grease-laden food. I may think twice about engaging in unhealthy behavior if I know that I will have to bear the cost of medical procedures that become necessary as a result. However, if I know that the cost is a "shared responsibility" as it states in the introduction to HR 3200, I am more likely to engage in unhealthy behaviors now because the future cost is lower.

As I've said in previous posts, the extra few ounces of prevention that we take when we bear the full cost of our actions make a big difference. Knowing that a doctor's visit will cost me at least provides some motivation to ensure that I wash my hands thoroughly, that I put bandages on cuts, that I get adequate sleep, that I eat a balanced diet.

But what happens to that "ounce of prevention" when you institute "free" health care? Suppose that apples cost $1 and doctors cost $0. Following the "an apple a day keeps the doctor away" saying really isn't compelling when doctors are cheaper than apples, is it?

Bailouts & Bonuses

It is widely recognized that bonuses are not a guaranteed supplement to a salary. They are typically given out of a company's profits, and when those profits are not there, bonuses are often withheld until the company is in a better position to award them. This is a function of a long-term plan that most companies operate under in a free market. However, when you institute a plethora of regulations, loopholes, and "free" taxpayer money, you have just warped this basic incentive towards long-term success. If I know that in spite of poor performance, I will receive large sums of money, am I likely to work harder and conserve that money towards promoting a stronger business model? Or am I more likely to spend that money now because I know that more will soon be on the way once the first round of funding runs out?

Instinctively, we react negatively when we hear about how our money is being given to AIG and doled out in large sums to executives. We are paying to run a company whose business model we disagree with! That is not fair! Of course, we blame the evil executives and call them greedy. But we forget that Congress and government intervention are fueling this greed. People are far more greedy when they are not spending their own money. We naturally agree with the free market, which gives us the incentive to forego short-term gain (and long-term losses) in favor of slow but steady long-term gains. The free market is just and fair, rewarding good decisions and punishing bad ones. The free market forces companies to make better decisions and spend wisely because otherwise they risk losing their incomes if they fail. Are the executives at AIG greedy? Sure! But we should not forget that it is the free market that reins in their greed and forces them to work for their bonuses, at least in the long-term. When we introduce government into the equation, we change the natural course of the market and give companies like AIG a free pass to do business with a short-term mentality rather than a long-term strategy. This is exactly what we are seeing now. AIG has not turned around in the last few months even with billions of dollars being handed over! What becomes the solution? If you ask Congress, they say that AIG just needs more money, or more conditions on how the next round of money should be spent.

What we seem to forget is that keeping the AIG name alive, does not mean that we are keeping AIG from failing. AIG has already failed. Any money that has been lost is already gone. We can either continue putting money into the bonfire in hopes of getting it back, or we can finally stop fueling the fire and let it slowly burn out.

No Health Care for You!

We should have known that a bill that gets pushed through late on Friday nights and referred to with the word "emergency" is probably the kind that would need even more scrutiny than most. Fortunately, Betsy McCaughey with Bloomberg has brought to light some provisions that may be harmful to your health, noting that these are the handiwork of Tom Daschle, who, prior to being exposed for owing $140,000 in back taxes, was Obama's choice for Health and Human Services Secretary. Amidst the spending in the stimulus bill are provisions for health rules that will affect everyone in the United States. In it, McCaughey writes, the Office of the National Coordinator of Health Information Technology is given the power to "monitor [your] treatments to make sure your doctor is doing what the federal government deems appropriate and cost effective."

McCaughey found that the provisions in the bill are nearly identical to those in Daschle's book, Critical: What We Can Do About the Health-Care Crisis. Daschle's book promotes setting up an appointed government agency to overrule the decisions you and your doctor make and "calls it the Federal Coordinating Council for Comparative Effectiveness Research (190-192). The goal, Daschle’s book explained, is to slow the development and use of new medications and technologies because they are driving up costs. He praises Europeans for being more willing to accept 'hopeless diagnoses' and 'forgo experimental treatments...'"

Wait a minute ... "slow the development and use of new medications?" Isn't that what the FDA already does with it's testing processes that take 8-10+ years and billions of dollars for new drugs to enter the market? And, while we're talking about a "stimulus" bill, isn't this exactly the opposite of what a stimulus is supposed to do?

And what are these "hopeless diagnoses" that Daschle speaks of? What about breast cancer that has spread and requires expensive treatments? What about AIDS for which there is no cure -- are "experimental treatments" that could save people's lives, or at minimum make their last days more bearable, now a thing of the past? What about cerebral palsy? Lou Gehrig's disease? Alzheimer's? What about rare diseases that doctors know little about?

Do we really want a bureaucrat sitting behind a desk examining our medical history and deciding how our physician is allowed to treat us? Is there any stranger to whom we would give control over our bodies and health? We would be reluctant to give that sort of carte blanche to anyone outside of our immediate families -- if that! Ironically, I doubt if the decisions by this appointed government agency will be made with as much expediency as the stimulus plan that establishes it. How long do you think your medical record is going to sit on someone's desk while you wait for a decision on whether you can get medical care or not?

During his term as Senator of Illinois, President Obama stated that he rejected the Born Alive Infant Protection Act of 2002 that would require a second physician to be present during abortion procedures to administer care if an infant were born alive, because, it was "designed simply to burden the original decision ..." If "burdening the decision" is a terrible thing, Mr. Obama, how can you reconcile this position with the creation of an entire government organization, costing more in your stimulus plan than the Army, Navy, Marines and Air Force combined, that is designed for the sole purpose of burdening the decisions between doctor and patient?

What Crisis?

Hearing words like "crisis" and "catastrophic" used to describe today's current pre-"stimulus" economic climate has me wondering: how bad is it really? Is the average American going through foreclosure? No. Are the millions of renters worried about house prices dropping? No. Am I personally suffering right now? No. Am I unable to get health care? No. As a matter of fact, I would bet that most of us are faring pretty well, even if our stocks aren't looking as good as they were a few months ago.

But, you say, what about the people who are losing their homes (by which, I assume you mean the few who actually are losing their primary residences, not the ones who are deliberately walking away from their second, third, fourth, fifth investment homes)? Foreclosure is not a new phenomenon. In normal markets, there are foreclosures. In fact, most of the delinquent loans reinstate under more favorable terms, usually by extending the loan term to reduce the monthly payment, or forgiving a portion of the principal. Banks have an incentive to restructure their clients' loans because banks do not want to lose their revenue and right now they certainly do not want to be in the real estate business. This was not the case during the housing bubble. From 2004 - 2006 in particular, banks were all too happy to enter the real estate business because they could turn around and sell the house for a profit.

But, what about people who have lost their jobs? At 7.2%, unemployment today is still low by historic standards. Unemployment right now also does not represent an across-the-board decline in jobs. Rather, it represents a transition from one sector to another. People who used to be in the mortgage and banking industries are moving to other sectors. This process takes time and there is some, temporary unemployment. People are not unemployed because there is no work for them to do; they are unemployed because in their previous role, they were not able to bring as much value as they cost.

What about people who have lost money in the stock market? This is a complicated issue, as stock prices reflect expectations of higher taxes to pay for national health care programs, bailouts, stimulus packages, higher corporate tax rates in general, increased capital gains taxes on stockholders, etc. All of these cause stock prices to go down. Is the solution then to raise government spending, thereby raising future taxes and inflation, which will cause stock prices to further plummet? When faced with higher capital gains taxes, people opt to either sell their stock now before the tax hikes go into effect, or they abstain from entering the market. Either way, demand drops and as we know from Economics 101, this means prices fall too.

More spending on socialized health care, government bailouts of companies that made bad decisions, and $800,000,000,000 quick-spend plans is not "the price we have to pay" to "get us out of a catastrophe." The expectation of increased spending and higher taxes under the new administration is what led to many of the declines in the stock market, caused companies to have difficulty increasing capital to retain employees, and is causing more economic woes than are warranted. Instead of proving these expectations to be correct, let's turn the course around by allowing consumers and businesses to tell the government to take a back seat and see how capable we are of deciding where our money goes without their so-called help.

Inflation and Growth Are Not Synonymous

People often cite the monetary contraction that occurred around the beginning of the Great Depression as a reason to adopt Keynesian ideas that state spending and creating inflation by increasing the money supply are appropriate ways of increasing aggregate demand and spurring growth. In the five-year period from 1929 to 1933, the money supply dropped by one third. The effect is that each remaining dollar is more valuable in proportion to the amount that the money supply has declined. This causes the dollar to rise in value relative to other currencies, and is preferable when the country is an importer of foreign goods because, for fewer dollars, it is able to obtain more goods and services from overseas.

One would expect that imports in this time period would have risen dramatically; however, this was not the case. Instead, due to the high tariffs that were imposed at the same time -- most notably, the Smoot-Hawley tariff of 1930 which raised import taxes to unprecedented levels -- imports declined by 66% from 1929 to 1933, despite the contraction of the money supply which would have otherwise had the opposite effect on imports. In retaliation for the strict protectionist policies of the 1930s, other foreign trade partners imposed restrictions and raised tariffs on U.S. products, further crippling industries in the U.S.

The fact that a monetary contraction coupled with the most protectionist policies of the time were contributors to a depression should not lend credence to the idea that printing more money to spend is an effective method for increasing productivity. Assuming the same protectionist tariffs were in existence today and that the U.S. were an importer of many foreign goods, inflationary policies would magnify the decline in imports by decreasing the value of the dollar on the world markets and would spark more retaliatory policies from our trading partners and further economic declines.

Finance 101

Politicians are constantly prescribing new programs to cure all of our financial woes and make everyone richer, healthier, thinner, smarter, happier and nicer. Now, if politicians were producing things of value with their own labor and money, they would be helping the economy. Instead, they take your money and your employer's, friends', neighbors' and family's and future generations'. When that isn't enough to pay for their expensive tastes in government programs, they just print more and make all of your dollars worth less. As overly simplistic as this explanation sounds, these are their only two options.

Somehow, politicians seem to believe that Americans will buy into (no pun intended) the idea that increased government spending is the cure. Undoubtedly, these Americans are the same ones who believe that they can pay off their debt by getting a new credit card. We can see on an individual level that people maximize their long-term wealth by spending on necessary things and investing what they can so that they are able to consume more in the future. When we face tough times, we spend less and we spend intelligently. The federal government would do well to follow the same sound financial strategy.

The Administration Has Begun...

Many Americans were very excited about the election of Barack Obama, believing he would bring change. And change is here.

Remember the "expensive" war in Iraq? Expensive it was, but nowhere near as expensive as the new "stimulus." Projections for how much the war in Iraq would cost in 2009 if it were to continue at its current rate were $136 billion. But President Obama's administration has made this number negligible, coming in with an Emergency Stimulus plan at nearly a trillion dollars. $1 trillion sounds like a big number, but just how big is it? $1 trillion is approximately the amount of individual income taxes that the government collects in a year ($1.0237 trillion in 2006, to be exact). That's right, for the amount of this "stimulus," Americans could have an income tax free year. Think about how much more everyone could do to stimulate the economy if they were allowed to keep their earnings instead of seeing it redistributed to those who are less productive than themselves.

This leads to the real reason why "stimulus" plans are not only misguided, but counterproductive. Anyone who has had a job knows that if you are known to be unproductive, if you don't show up to work, and if you don't carry your weight, your company does not offer you more money -- it (eventually) will fire you. The company offers its money to those people who were productive and helped the company succeed, so that it can continue to succeed in the future. This is the opposite of what these so-called stimulus plans do. They promote redistribution programs, which take money from those who were productive and give it to those who are not. But look at what great items are on the ticket... $600 million for the federal government to buy new cars, $650 million for DTV conversion coupons, and even $200 million towards planting grass on the National Mall.

Yet, the sentiment seems to be that economists nationwide are in full support of the need for the government to "jumpstart the economy" as though it is a car whose battery has died and there's some external force capable of making it run. President Obama seems to believe, "There is no disagreement that we need action by our government, a recovery plan that will help to jumpstart the economy." The CATO Institute issued an article disputing this, signed by hundreds of economists. Among them were Nobel Laureates and respected college professors, but this is still by no means an inclusive list. These economists say, "With all due respect, Mr. President, that is not true." Government does not make the economy run. Economics is the interaction of billions of individuals who, in pursuing their own living, make the lives of others better. It is not taxes or government spending that spur new invention, new medicines, and new technologies. It is the promise of profit that drives people to devote themselves to countless hours of research and education. It is profit that causes even the most selfish people to concern themselves with the needs of others, and to meet those needs. Government ignores this true driver of growth and prosperity, and arrogantly presumes that our money is its money to throw away.

The Return of Capital Freedom

Since April 2006, nearly two years ago when I last posted, many changes have occurred ... and many things have stayed the same ...

A brief (and by no means all-inclusive) list:

In the market ...

• The 10-year Treasury rate was 4.84% -- today it is 3.56%
• Subprime loans lost their popularity as investments -- for reasons other than default risk
• The conforming loan limit increased from $417,000 to $729,750
• $1.23 bought 1 Euro -- today $1.56 buys 1 Euro
• 12¢ bought 1 Chinese Yuan -- today 14¢ buys 1 Chinese Yuan
• 1 gal of regular gasoline cost $2.56 -- today 1 gal costs $3.20

Throughout the world ...

• Former Pakistan Prime Minister Bhutto was assassinated after her return to Pakistan
• 20 million toys from China were recalled due to safety concerns
• A list of "new sins" was released by the Catholic Church, including pollution and making "too much" money

In politics ...

• Bids for the upcoming presidential election have been the highlight of the news
• There is no "conservative" or "classical liberal" Presidential candidate

In taxes ...

• The "rich" still pay most of the taxes, while a single woman earning $46k with two children pays no federal income taxes and receives around $3k Earned Income Credit
• Still, no one claims the poor aren't paying their "fair share"
• Taxes on gasoline average $0.47/gallon ... not to mention all of the indirect taxes associated with its production ...

In the blogging community ...

Capital Freedom has returned ...