FYI: questions about our economy

[mismused]

delete

 

[rgraham666]

I've known about this problem for years. And I'm neither an accountant or an economist.

I notice that they didn't talk about reducing military spending though. Which, as I recall, eats a big portion of the Federal government.

Anyway, there's no way the current administration or any of its allies in Congress will do anything about the deficit or the debt. To them, those things are merely tools to show how fiscally irresponsible the liberals are, and to push for destruction of programs like Social Security and Medicare. Remember the fooforaw about the debt here in Canada a few years ago, Pure?

"Ronald Reagan showed that deficits don't matter," to quote the Vice-President.

Also, I wonder about projecting finances so far into the future. We have no idea if humans will still be an extant species in a hundred years. Why worry about something as unreal as money?

 

[oggbashan]

The US's deficit is not just an internal problem.

When the US sneezes, Europe catches the cold.

If drastic measures have to be introduced to address the deficit, that will impact on interest rates around the world and home-buyers in the UK and Europe may end up paying far more than they are prepared to, or can, pay.

Sooner or later the imbalance in trade between the US and China must be settled. China cannot keep supplying goods on credit and that is what it is doing now.

Og

 

[Tuomas]

Another reason why democracy just doesn't live up to the hype

Obviously in the article they have to be a little more alarmist than the situation actually warrents, but that does not detract form a serious problem. Concern over the budget used to be a central theme in politics, I recall, but it appears as if the new generation of uneducated people cannot wrap their minds about it.

Anyway, other countries have ruined their finances and survived -mostly through dictatorships. Now picture the US under a dictatorship and that huge military at it's disposal ....

 

[Roxanne Appleby]

I like this one: "The government is essentially going to have to renegotiate some of the promises it has made to its citizens . . ."

In other words, the politicians were lying. However, if you were dumb enough to believe them and make plans on that basis, you deserve the haircut that's coming.

Three quick points: Due to their overall size, the military budget has about as much potential as a middle school bake sale to fill the unfunded social welfare liabilities, even if you take it all, and cut the pentagon budget to zero. Second, the article doesn't mention the unfunded pension and health care liabilities of state and local governments. In the coming decades, when the people are groaning under the tax hikes and service reductions those are going cause, government workers with their gold-plated pensions and health care are going to become a class just about as hated as the nobility in France before the storming of the Bastille. Finally, if you think the U.S. is in trouble, wait until you see what happens when the chickens come home to Europe - they are really fucked.

On the corrupt ponzi scheme known as social security, a few things are all but certain to happen. It will get means tested, and become in part a welfare program for low income people instead of a so-called "pension" system; the lying pols will have to 'fess up to the middle class that a big part of the "FICA" taken out of your paycheck is not a "pension contribution," but a tax used to redistribute your earnings to someone else, and you will never see that money again. Also, and related, the benefits will be cut, mostly in the form of pushing back retirement dates (the Greenspan commission already did that a couple decades ago) and rejiggering the COLAs, but there will be some other haircuts also. Yes, and probably some tax hikes, although there's a limit on how much you can load on working people to pay for the retirements of their parents who evaded reality by believing the lying pols. The lying pols who told them they could have something for nothing.

Finally, health care. The U.S. spends 15 percent of GDP on it. How much do you want to spend - 20%? 30%? 50%? You can't do 100% - we still have to eat, heat and maintain homes, buy clothes, and maybe have a few bucks left for ISP bills. So supply is limited. Demand, however, is not. Which means health care needs to be rationed. The question the U.S. faces is who will do the rationing - individuals acting in their own interest, or politicians and bureaucrats, acting in their own interest. In Europe, government and bureacrats do the rationing, and they use various mechanisms to accomplish it. The most common one is to make people wait. In the U.S. a variety of rationing methods are also used, none of them ideal.

The one method that's used least is the one that works best: You pay for health care service out of your own pocket, just like groceries or furniture or clothes purchases. This createsvincentives to economize. This system used to exist, alongside a concept called "insurance" in which you also paid for a contract to cover any extraordinary or catastrophic expenses. That all has been pretty much replaced by prepaid health care, with the bills being paid by someone other that the person who uses the service - the employer or the government. (Government pays for about 1/2 the health care costs in the U.S. now.) The incentive is to use as much as possible and do nothing to reduce costs, because you don't pay for it yourself - someone else does.

That old fashioned "pay your own way and buy insurance" would still the best way, if we can figure out how to provide care and replicate the same set of incentives for those who can't afford to pay routine health care bills or buy insurance, because as a society we've pretty well determined that we need to provide health care for the poor and indigent. We do it now by more or less replicating for them the kind of system Europe has, and like in Europe letting government bureaucrats and politicians ration it in various ways, most of them dishonest. For example, the health care providers pretty much get gypped out of what their services are really worth.

The key to a sustainable health care system for all is to get the incentives right: The economizers must benefit from their economizing (like happens when you go to the grocery store or buy any other consumer product.) Getting that right will pretty much take care of the second set of incentives that need to happen: Providers benefit from increasing productivity, and finding better, cheaper and faster ways to provide health care. "Benefit" in the preceeding sentences means, "get to keep more of their money" and "get to make more money."

Well, that's a bit of a diversion, but not really, because health care really is the tough nut. It's very possible to create a system that covers everyone, has great quality, and gives individuals more freedom and choice, if we are all mature and honest and willing to not play political games. Which probably won't happen, so we're probably fucked anyway. But we don't have to be, and that's the shame.

 

[colddiesel]

How China Has US by the Balls

PW/OFC:
* * *

Like many of its citizens, the United States has spent the last few years racking up debt instead of saving for the future. Foreign lenders - primarily the central banks of China, Japan and other big U.S. trading partners - have been eager to lend the government money at low interest rates, making the current $8.5-trillion deficit about as painful as a big balance on a zero-percent credit card.

10/28/06 12:32

This is the most important point made but it needs updating.George Bush cut taxes but his government is still a big spender.The Tax shortfall is being funded through a massive increase in the sale of US government Bonds. The buyers did include UK Germany France Japan and Germany but not any more, they have deserted the markets in the past few months. That leaves one buyer, CHINA.

How many middle class Americans realise that their standard of living depends directly on the CHINESE communist governments willingness to accept Uncle Sams'credit.

I think that Bushs'surrender of fiscal sovereignty will eventually emerge as a far more serious security issue than the Iraq debacle. If the current level of indebtedness to China increases at the same rate for the until 2008 US tax policy will be clearly directed from Beijing not Washington.

If you think I am wrong check the numbers.

 

[TheEarl]

That leaves one buyer, CHINA.

How many middle class Americans realise that their standard of living depends directly on the CHINESE communist governments willingness to accept Uncle Sams'credit.

I think that Bushs'surrender of fiscal sovereignty will eventually emerge as a far more serious security issue than the Iraq debacle. If the current level of indebtedness to China increases at the same rate for the until 2008 US tax policy will be clearly directed from Beijing not Washington.

If you think I am wrong check the numbers.

If we learn from history, then the downfall of the last world superpower, the British Empire, was directly due to being indebted to the USA after borrowing extensively to fight two world wars. The USA controlled our foreign policy by crashing our economy whenever we did something that they didn't like, Suez being a prime example, and forced us to concede our power-base.

You have to wonder if the Chinese will try the same trick.

The Earl

 

[Roxanne Appleby]

I think that Bushs'surrender of fiscal sovereignty will eventually emerge as a far more serious security issue than the Iraq debacle. If the current level of indebtedness to China increases at the same rate for the until 2008 US tax policy will be clearly directed from Beijing not Washington.

If you think I am wrong check the numbers.

Analyses like these are sound good but are always wrong because they ignore the mutuality of interests in these various relationships, and more important, that the what really matters is the ongoing wealth-producing capacity of the nations involved. That sounds a bit abstract I know, here's an analogy: If you owe money to a bank, it's in the bank's interest that you don't go broke.

The article I've pasted in the next post may explain better.

 

[Roxanne Appleby]

Gray World
By JEREMY J. SIEGEL

WSJ September 20, 2006; Page A26

The United States and the rest of the developed world stand at a precipice. Over the next two decades, tens of millions of Americans, Europeans and Japanese -- members of the prosperous "baby boom" generation that was born following the Second World War -- will leave the labor force. Many are expecting a long and comfortable retirement by relying on government and private pension plans as well as tax-supported medical services.

But unless we can exploit the dramatic demographic and economic changes that are before us, our future will be much poorer. Instead of stepping into an easy retirement, many retirees will tumble into a future marked by bankrupt government social programs and declining asset values that will quickly deplete their cherished nest eggs.


This forecast is not based on an unpredictable future, but on events that have already transpired. Aside from immigration, we know almost exactly how many people over the next 20 years are going to reach the working age of 20 and the retirement age of 65. "Demography," as the great management sage Peter Drucker once remarked, "is the future that already happened."

Demography is Destiny: The latest data from the U.N. Demographic Commission, displayed in the accompanying chart, clearly show the aging of the developed world. In the U.S. in 1950 there were seven people of working age (20-65) for every retiree, and even today, there are almost five. But by 2030, when the last of the baby boom generation retires, that ratio will fall by nearly one-half, down below 3 to 1.

http://i48.photobucket.com/albums/f224/spitfiregriffin/SEIGEL.gif

The aging of the population in Europe and Japan is even more extreme than in the U.S. In Japan by mid-century, the ratio of workers aged 20-65 to retirees will fall to just over one-for-one. At that time the most populated five-year age segment in Japan will be those aged 75-80. The same will be true in Italy, Spain, Greece and other European countries. The demands of the retirees from Europe and Japan will raise the prices of goods bought and sold in international markets, so there is no way the U.S., despite its younger population, can shield itself from the demands arising from the aging populations abroad.

The Bankruptcy of Government and Private Pension Systems: Although it is widely known that our Social Security and Medicare Programs are threatened by these demographic trends, there are many who believe that they have accumulated sufficient private wealth to fund their retirement.

But this may not be so. The same crisis that strikes the public pension programs can overwhelm private pensions as well. Since there will not be enough workers earning income, there will not be enough savings generated to purchase the assets the retirees must sell to finance their retirement.

The reasons why retirees cannot turn their savings into consumption is because wealth can only be transformed into goods and services if they are sold to those willing to defer their consumption. In a modern economy, wealth does not represent "stored consumption," such as a cache of acorns that squirrels bury to bide them through a long winter. You cannot consume your stock certificates, but must sell them to someone else who wants a chance to consume at a later date. If there is a shortage of these savers, this may cause a long and painful bear market in stocks, bonds and real estate that will leave retirees with insufficient assets to enjoy retirement.

There are some who maintain that so much wealth in stock is passed on through bequests that the lack of demand from future workers will not have much impact. But the heirs and foundations who are bequeathed these fortunes often spend their wealth far faster than did their wealthy benefactors, and this spending often requires the sale of substantial stock. Furthermore, the large volume of bank accounts, bonds and other fixed income securities that must be liquidated to finance the retirements of ordinary retirees could sharply raise interest rates and depress equity prices.

Reversal of a Century-long Trend: Depressed asset prices are just one reason why the long-standing trend to an earlier retirement will be halted dead in its tracks. When Social Security was passed in 1935, the average retirement age was 69. That age fell to 67 by 1950, and to 62 today. In 2003, for the first time, more Americans chose the reduced Social Security benefits at age 62 than the full benefit that starts at 65. Despite improving health, surveys indicate that the bulk of Americans and Europeans want to retire earlier, not later.

Because of our aging population, I calculate that the average retirement age will have to rise by 10 years or more for workers to produce enough goods and services to provide for a comfortable retirement. This increase will greatly exceed the expected increase in life expectancy and lead -- for the first time in history -- to an absolute reduction in the number of years in retirement.

The Global Solution: There is no easy way out of this crisis. To be sure, rising productivity brings higher income, but it also brings higher benefits, since benefits are based on income. Immigration of high-income workers would ease the situation, but the numbers would need to be prodigious to keep the retirement age from rising.

But there is a solution that can help aging economies. The developing world has a much younger age profile than the developed world. This difference in age establishes an opportunity to make a trade: Goods produced by the younger developing world can be exchanged for assets of the older developed world. This trade is not new. The transfer of goods for assets has taken place throughout history, first between family members (parents giving to children in exchange for old-age support), and then extending to clans, communities and, finally, whole nations. Soon it can be done on a worldwide basis. The developing world has the capability of simultaneously providing us with goods and acquiring our assets, filling the gap left by our aging workers.

I call this the "global solution to the age wave" and it relies on huge global capital flows to be effective. My studies show the inflow of goods and services produced abroad in exchange for capital can have dramatic effects, reducing the projected retirement age in the U.S. from the mid-70s to the upper 60s.

* * *
Why would the developing world wish to acquire our capital when their countries are expanding so rapidly? One of the first lessons one learns from studying international capital markets is that the best returns are rarely found in countries that are growing the fastest. Witness China's dismal returns despite being the fastest growing country in the last 20 years. Investors can often find better returns in slow-growing countries and industries

To that end, U.S. capital markets have many attractive attributes. Our country is still viewed as the fountainhead of innovation, discovery, invention and entertainment, and our institutions of higher education are second to none. Our capital markets are deep, and easy to access, and willing to provide capital to those who wish to innovate. Equally important is that many U.S. brand names have great appeal world-wide so the growth of consumer markets abroad holds high promise for many U.S. firms.

For these capital movements to occur, we must be far more receptive to international capital. Although there has already been a large number of cross-country mergers, there has also been increasing opposition, witness Cnooc's bid for Unocal and the Dubai Ports fiasco. But if we rebuff goods or capital originating abroad, our growth will decline since we will be forced to rely only on our own dwindling supply of savings.

We cannot escape from our demographic realities. But we can take actions that will lead to a much brighter outcome. The integration of the world's economies and capital markets is the key to our future well-being. If we shun this path, our future will in no way be as bright as our past.

Mr. Siegel is professor of finance at the Wharton School, at the University of Pennsylvania. (This concludes a two-part series on baby boomers. The first part, by Michael Milken, ran yesterday.)

 

[SeaCat]

I like this one: "The government is essentially going to have to renegotiate some of the promises it has made to its citizens . . ."

In other words, the politicians were lying. However, if you were dumb enough to believe them and make plans on that basis, you deserve the haircut that's coming.

Three quick points: Due to their overall size, the military budget has about as much potential as a middle school bake sale to fill the unfunded social welfare liabilities, even if you take it all, and cut the pentagon budget to zero. Second, the article doesn't mention the unfunded pension and health care liabilities of state and local governments. In the coming decades, when the people are groaning under the tax hikes and service reductions those are going cause, government workers with their gold-plated pensions and health care are going to become a class just about as hated as the nobility in France before the storming of the Bastille. Finally, if you think the U.S. is in trouble, wait until you see what happens when the chickens come home to Europe - they are really fucked.

On the corrupt ponzi scheme known as social security, a few things are all but certain to happen. It will get means tested, and become in part a welfare program for low income people instead of a so-called "pension" system; the lying pols will have to 'fess up to the middle class that a big part of the "FICA" taken out of your paycheck is not a "pension contribution," but a tax used to redistribute your earnings to someone else, and you will never see that money again. Also, and related, the benefits will be cut, mostly in the form of pushing back retirement dates (the Greenspan commission already did that a couple decades ago) and rejiggering the COLAs, but there will be some other haircuts also. Yes, and probably some tax hikes, although there's a limit on how much you can load on working people to pay for the retirements of their parents who evaded reality by believing the lying pols. The lying pols who told them they could have something for nothing.

Finally, health care. The U.S. spends 15 percent of GDP on it. How much do you want to spend - 20%? 30%? 50%? You can't do 100% - we still have to eat, heat and maintain homes, buy clothes, and maybe have a few bucks left for ISP bills. So supply is limited. Demand, however, is not. Which means health care needs to be rationed. The question the U.S. faces is who will do the rationing - individuals acting in their own interest, or politicians and bureaucrats, acting in their own interest. In Europe, government and bureacrats do the rationing, and they use various mechanisms to accomplish it. The most common one is to make people wait. In the U.S. a variety of rationing methods are also used, none of them ideal.

The one method that's used least is the one that works best: You pay for health care service out of your own pocket, just like groceries or furniture or clothes purchases. This createsvincentives to economize. This system used to exist, alongside a concept called "insurance" in which you also paid for a contract to cover any extraordinary or catastrophic expenses. That all has been pretty much replaced by prepaid health care, with the bills being paid by someone other that the person who uses the service - the employer or the government. (Government pays for about 1/2 the health care costs in the U.S. now.) The incentive is to use as much as possible and do nothing to reduce costs, because you don't pay for it yourself - someone else does.

That old fashioned "pay your own way and buy insurance" would still the best way, if we can figure out how to provide care and replicate the same set of incentives for those who can't afford to pay routine health care bills or buy insurance, because as a society we've pretty well determined that we need to provide health care for the poor and indigent. We do it now by more or less replicating for them the kind of system Europe has, and like in Europe letting government bureaucrats and politicians ration it in various ways, most of them dishonest. For example, the health care providers pretty much get gypped out of what their services are really worth.

The key to a sustainable health care system for all is to get the incentives right: The economizers must benefit from their economizing (like happens when you go to the grocery store or buy any other consumer product.) Getting that right will pretty much take care of the second set of incentives that need to happen: Providers benefit from increasing productivity, and finding better, cheaper and faster ways to provide health care. "Benefit" in the preceeding sentences means, "get to keep more of their money" and "get to make more money."

Well, that's a bit of a diversion, but not really, because health care really is the tough nut. It's very possible to create a system that covers everyone, has great quality, and gives individuals more freedom and choice, if we are all mature and honest and willing to not play political games. Which probably won't happen, so we're probably fucked anyway. But we don't have to be, and that's the shame.

An overly simplified but still acurate view on the Medical Crisis in America.

Simplified because you do not address the reasons many of the Medical Costs are soaring well beyond the means of many people to pay for.

Minor little things like institutions having to pay for the health care of those who can't pay. Liability Insurance Premiums going through the roof. (No it's not just the Doctors who have to pay these. Hospitals and other Institutions have to pay them as well.) (We won't even go into why these Premiums are going through the roof.) The cost Institutions and Doctors groups have to pay to keep up with the technical advances in medicine. (i.e. the cost of that nice new Imaging Device they are using in your local hospital to detect early stage Breast Cancer. The money for it has to come from somewhere.) Health Insurance Costs going through the roof, (even for basic coverage.) The cost of Medications.

A minor Operation can now cost well into the thousands of dollars. Treatment for a heart attack will create bills of well over ten thousand dollars. Who among us has that kind of money sitting around? (The total bills for my treatment of Cellulitis came to five thousand dollars. This was for the Blood Tests, the office visits, and the medications used. It would have been at least double if not triple this if I had allowed myself to be hospitalised. I make $10.90 an hour. How could I have afforded this bill?)

I would love to see a cure for this problem, and no I don't see socialised medicine as the cure. There has to be a major review and change in the way things are handled, including the lawsuits. Unfortunately there are too many people making money of this system as it stands now to allow these much needed changes.

Cat

 

[Roxanne Appleby]

An overly simplified but still acurate view on the Medical Crisis in America.

Simplified because you do not address the reasons many of the Medical Costs are soaring well beyond the means of many people to pay for.

Minor little things like institutions having to pay for the health care of those who can't pay. Liability Insurance Premiums going through the roof. (No it's not just the Doctors who have to pay these. Hospitals and other Institutions have to pay them as well.) (We won't even go into why these Premiums are going through the roof.) The cost Institutions and Doctors groups have to pay to keep up with the technical advances in medicine. (i.e. the cost of that nice new Imaging Device they are using in your local hospital to detect early stage Breast Cancer. The money for it has to come from somewhere.) Health Insurance Costs going through the roof, (even for basic coverage.) The cost of Medications.

A minor Operation can now cost well into the thousands of dollars. Treatment for a heart attack will create bills of well over ten thousand dollars. Who among us has that kind of money sitting around? (The total bills for my treatment of Cellulitis came to five thousand dollars. This was for the Blood Tests, the office visits, and the medications used. It would have been at least double if not triple this if I had allowed myself to be hospitalised. I make $10.90 an hour. How could I have afforded this bill?)

I would love to see a cure for this problem, and no I don't see socialised medicine as the cure. There has to be a major review and change in the way things are handled, including the lawsuits. Unfortunately there are too many people making money of this system as it stands now to allow these much needed changes.

Cat

Actually, Cat, my post does give the reasons costs are out of control: The incentives are all messed up because of our third party payer system. Consumers don't have any incentive to economize, meaning shop for the best best price. Therefore, because suppliers aren't rewarded for offering better value (meaning get more biz and make more money), suppliers have little incentive to innovate and increase productivity the way they do in markets where consumers have an incentive to price- and value-shop.

You get those things straightened out, and the rest will take care of itself. Don't get them straightened out, and nothing else you do will fix it.

This is not a liberal/conservative issue, either. It's fully possible to get the incentives right in a system that provides good health care for everyone. Figuring out the details of how to make that work is the easy part. Mustering the political will to do it is something else. There are a lot of statists who are just chomping at the bit to put the whole shooting match in the control of politicians and bureacrats. God knows why (unless you're a pol or bureaucrat.)

 

[Tuomas]

I'm officially in love with Roxanne Appleby What a brain she has!

And I very much value SeaCat's contribution, and agree with it, as it compliments Roxxanne's more abstract view of the situation.

Healthcare will always be a major issue, simply because it costs so much to provide. The tools and the knowledge needed to provide cutting-edge medicine to everyone simply costs too much. This situation provides and excelent opportunity for politicians to exploit human suffering to their advantage, further agravating the situation and leading the system astray.

And someone dying because they can't afford medical treatment makes excelent television.

Public -or state-run- healthcare does not work. My country has both systems; and people are allowed to choose between them. Not surprizingly, the private healthcare system is by far the best. Now we have people complaing about how it's unfair, because people who can afford it, get better treatment in private hospitals. They argue that the private sector should be closed down because it works so good and makes the public sector look bad. Well, guess what? The public service is bad. I mean, they run out of drugs, and lots of the public hospitals have to function with donations (and that considering our President is actually a doctor). But, since the people only think about healthcare when they are sick, the ministry of health is chronically underfunded (even with large injections of funds, resources and equipment from private hospitals).

Not that facts would covince a statist, but you never really should give up trying

 

[Roxanne Appleby]

Healthcare will always be a major issue, simply because it costs so much to provide. The tools and the knowledge needed to provide cutting-edge medicine to everyone simply costs too much.

Yes and no. Your comment refers to the requirement to ration a good for which there is essentially unlimited demand and necessarily a limited supply (we can't spend 100 percent of GDP on health care because we need to spend some of it on food, shelter, energy, transportation, etc.) So "yes." But what does "too much" mean where a regular market doesn't exist to define that, but instead a wierd third party payer system? It costs what it costs, but how do we know if a particular service is a good value?

If we had a system in which people exercised more choice, and had incentives to economize, and providers had incentives to increase productivity, then "too much" might start to be definable in a meaningful way.

Let me give one little example. Let's say we phased in a system in which everyone in the country got a voucher worth $3,000 each year to buy insurance for life. Let's imagine that if you bought a lifetime policy starting at age 21, $3,000/year would buy a basic for life. Baked into this system would be incentives to economize, like MSAs, copays, etc.

Also, if you chose you could pay more and get insurance that covered things the basic coverage did not, like say heart transplants at age 86 and other extraordinary old age stuff. But the cost would be $20,000 per year for life, not $3,000.

Now I think heart transplants at age 86 are foolish. How much more time are you going to buy? There are a limited number of donors, and the procedure costs a ton. Personally, I wouldn't pay $20,000/year for it. It would be "too much." At 86, when the doc says the ticker's kaput, then it would be time to check out gracefully. I couldn't complain because I would have made the decision 64 years previously, when I opted for the $3,000/year vs $20,000 year policy. That extra $17k in disposable income all those years bought a lot of good living that made it worthwhile to not have few more crappy years of life after age 86.

That $3,000/year is about what it would take, by the way, to buy the kind of lifetime insurance I'm talking about. Most 20- and 30-somethings don't use much health care, so that money would accumulate in insurance company investments, the same way life insurance premiums do. Some of the money would cover catastrophic expenses incurred by other 20- and 30-somethings in the insurance pool, but most would just grow.

Currently, the per capita health care expenditure in the U.S. is around $7,500. This actually wouldn't change, but because all those insurance premiums would be growing in investment fund for a long time, and also because the people would pay routine expenses out of pocket, the $3,000 a year for lifetime health insurance is plausible, after a certain transition period.

Please don't start jumping up and down about the poor who can't handle the copays, etc. It's possible to devise ways and means to cover that and still put in place the most important element: Proper incentives. Giving people an incentive to economize. "Incentive" means, if you're a smart shopper and you avoid unnecessary expenses you get to have more money to spend on other stuff, like cognac, cashmere sweaters and DSL.

 

[wazhazhe]

Well, that's a bit of a diversion, but not really, because health care really is the tough nut. It's very possible to create a system that covers everyone, has great quality, and gives individuals more freedom and choice, if we are all mature and honest and willing to not play political games. Which probably won't happen, so we're probably fucked anyway. But we don't have to be, and that's the shame.

I didn't quote your entire post but I found it thought provoking.

I fear health care and many other problems that will never be solved because of the political games played. I'm trying hard not to agree with you that we're probably fucked but ...

 

[Pure]

health care is a puzzle or 'tough nut' for Americans since, besides the goal of seeking to provide a reasonable level of services to all, the following requirements are made: doctors, hospitals, and insurers shall not, in their charges, fees, conditions for offering service, be regulated by the government in any way. all are free to seek to maximize profits, and to 'combine' as they see fit (make agreements not to compete).

if the requirements are fuzzy for some, they're made even clearer and with fewer exceptions by ms rox and her Rand 'laisser faire' approach. esp. her extreme emphasis on avoiding moral dangers (most people's laziness, self-indulgence and desire to suck the system dry).

a number of W. European nations have functioning health care systems. there really is no big fucking mystery about this problem.
hell, the state of Vermont made a good start. there's nothing mysterious except where solutions are impossibly constrained.

 

[Pure]

Query: middle class squeezed?

CNN--that impossibly right wing news outlet-- has been running a series 'war on the middle class.'

What do people think? Leaving aside the term 'war,' which sounds a bit shrill, Are they/you being squeezed exceptionally--in economic terms-- in the last decade? What are the figures that show this? What are your experiences that show this economic squeeze?

after all many of the middle or median income people, thanks to the efficiencies of the Chinese dictatorship and Walmart's distribution services can enjoy all kinds of cheap goods (wide screen TV, computers, etc.)

there is an interesting discussion of what indicators account for many people's unease despite their slightly improved positions:

http://www.washingtonpost.com/wp-dyn/content/article/2006/10/27/AR2006102701485.html

 

[rgraham666]

If we learn from history, then the downfall of the last world superpower, the British Empire, was directly due to being indebted to the USA after borrowing extensively to fight two world wars. The USA controlled our foreign policy by crashing our economy whenever we did something that they didn't like, Suez being a prime example, and forced us to concede our power-base.

You have to wonder if the Chinese will try the same trick.

The Earl

I read a book recently, Blood, Tears and Folly, about Britain in WWII.

It actually went back a fair distance at times to explain what happened.

I was struck by Britain's downfall as an industrial nation. At the start of the 19th Century Britain was the world's premier industrial nation. They had the best, most modern factories. Raw materials poured in and manufactured goods flowed out, the profits on which made Britain very rich and very powerful.

Around about the middle of the 19th Century, Britain started to drift away from manufacturing and went into finance. They started lending out all their money and made their wealth from the interest on this.

A lot of this money went to the U.S. and Germany, who quickly overtook Britain in manufacturing, and power.

It seems to me that the U.S. followed the same path. With China taking over.

(Wanders off humming The Propellorheads "History Repeating")

 

[Tuomas]

Yes and no. Your comment refers to the requirement to ration a good for which there is essentially unlimited demand and necessarily a limited supply (we can't spend 100 percent of GDP on health care because we need to spend some of it on food, shelter, energy, transportation, etc.) So "yes." But what does "too much" mean where a regular market doesn't exist to define that, but instead a wierd third party payer system? It costs what it costs, but how do we know if a particular service is a good value?

If we had a system in which people exercised more choice, and had incentives to economize, and providers had incentives to increase productivity, then "too much" might start to be definable in a meaningful way.

Let me give one little example. Let's say we phased in a system in which everyone in the country got a voucher worth $3,000 each year to buy insurance for life. Let's imagine that if you bought a lifetime policy starting at age 21, $3,000/year would buy a basic for life. Baked into this system would be incentives to economize, like MSAs, copays, etc.

Also, if you chose you could pay more and get insurance that covered things the basic coverage did not, like say heart transplants at age 86 and other extraordinary old age stuff. But the cost would be $20,000 per year for life, not $3,000.

Now I think heart transplants at age 86 are foolish. How much more time are you going to buy? There are a limited number of donors, and the procedure costs a ton. Personally, I wouldn't pay $20,000/year for it. It would be "too much." At 86, when the doc says the ticker's kaput, then it would be time to check out gracefully. I couldn't complain because I would have made the decision 64 years previously, when I opted for the $3,000/year vs $20,000 year policy. That extra $17k in disposable income all those years bought a lot of good living that made it worthwhile to not have few more crappy years of life after age 86.

That $3,000/year is about what it would take, by the way, to buy the kind of lifetime insurance I'm talking about. Most 20- and 30-somethings don't use much health care, so that money would accumulate in insurance company investments, the same way life insurance premiums do. Some of the money would cover catastrophic expenses incurred by other 20- and 30-somethings in the insurance pool, but most would just grow.

Currently, the per capita health care expenditure in the U.S. is around $7,500. This actually wouldn't change, but because all those insurance premiums would be growing in investment fund for a long time, and also because the people would pay routine expenses out of pocket, the $3,000 a year for lifetime health insurance is plausible, after a certain transition period.

Please don't start jumping up and down about the poor who can't handle the copays, etc. It's possible to devise ways and means to cover that and still put in place the most important element: Proper incentives. Giving people an incentive to economize. "Incentive" means, if you're a smart shopper and you avoid unnecessary expenses you get to have more money to spend on other stuff, like cognac, cashmere sweaters and DSL.

Again, yes and no

Almost everything has an unlimmited demand, but a limited supply (I believe that is a corollary of the definition of economics). Healthcare is particular because, unlike other consumer items, it can be construed as a "need" instead of a "want". While there is an unlimited demand for hi-fi systems, we don't feel bad about not providing them to everyone since they don't really "need" them. Heart transplants are a different matter.

And that's why your last paragraph is there; you have to justify what appears to be a limitation of access to "poor" people. However, is this concern for the poor a real concern on the public's part, or just a political ploy?

As for the insurance thing, I do very much agree. I would like to make an observation, however, as to why health insurance is needed in the first place. It's not that people don't have the money to pay for their operations, but simply because they don't put away for a rainy day. The lack of foresight of the common person is what makes it necesary to have manditory pensions and manditory healthcare. Really, we are not solving a "need", but a lack of responsability on the public's part.

Because of that, young people will always opt for the "cheaper" health insurance (unless they are hipochondriacs), because they want to have the money to spend "now". Then, when they get old, they whine about the measly healthcare they gave themselves when they were younger. Then some politician is going to find a 65-year-old who looks very young of his age, drag him on TV and say how awfull it is this man has do die because his insurance does not cover a liver transplant (never mind he killed his liver with too much drinking), and demand "restructuring" the system to allow for more "equality".

Sorry, I'm a pessimist at times. I do like your system, because A) It provides for median healthcare B) it keeps the "saved" money in the economy C) is sustainable in time D) does not rely on third parties.

I also think that if the proper incentives were put in place, the cost of healthcare would drop significantly. Such incentives would actually eliminate all the inefficient and ineffectual systems within the system. Healthcare in the US is very bloated for lots of reasons, and when people have to pay out of pocket, they will be very concerned about efficiency. At US$7,500 average, healthcare comes out to be around US$2.2trillion -or, to put it in political activist speach "three times what is spent on armaments".

I suppose I should learn more of the details of the system to have a more educated opinion on it ...

 

[Pure]

hi tuo

As for the insurance thing, I do very much agree. I would like to make an observation, however, as to why health insurance is needed in the first place. It's not that people don't have the money to pay for their operations, but simply because they don't put away for a rainy day. The lack of foresight of the common person is what makes it necesary to have manditory pensions and manditory healthcare. Really, we are not solving a "need", but a lack of responsability on the public's part.

I don't think 'lack of foresight of the common person' explains the need for various kinds of 'insurance' scheme (i.e., the good ones and the rip offs, which many are).

Lots of people put aside for a rainy day, then find there's a flood; i.e., they've save $5000, but not $150,000 for American heart surgery. So the house must be sold (their only major asset).

Insurance is based on spreaking risks, as when farmers insure crops. it seems that's based on humans foreseeing a problem and using their brains to deal with it. i wonder why that's evidence of 'lack of foresight.' the frenzied buying of insurance, often a ripoff, is, i'd submitt, evidence of a effort to foresee extraordinary conditions.

I suppose some lofty abstract theorist like Ms. Ayn Rand could say, "it's always lack of foresight," but that's a very biased view (as a matter of fact, i doubt she did say that; she probably said she didn't want the *government* to insure anything). A main problem is living hand to mouth with inadequate income. (I know, I know, he should just work harder.)

I'm not sure how to argue this point, because, whatever happens, you'll say, "He should've saved more." And if I say, "His wages didn't allow more," you'll say, "Well he should've taken a second job." etc.

OTOH, i think lots of normally prudent people end up in the doghouse--e.g., those experiencing Katrina. I suppose you'll say 'they should've had extra house of refuge outside the hurricane area.'

 

[Roxanne Appleby]

Again, yes and no

Almost everything has an unlimmited demand, but a limited supply (I believe that is a corollary of the definition of economics). Healthcare is particular because, unlike other consumer items, it can be construed as a "need" instead of a "want". While there is an unlimited demand for hi-fi systems, we don't feel bad about not providing them to everyone since they don't really "need" them. Heart transplants are a different matter.

And that's why your last paragraph is there; you have to justify what appears to be a limitation of access to "poor" people. However, is this concern for the poor a real concern on the public's part, or just a political ploy?

As for the insurance thing, I do very much agree. I would like to make an observation, however, as to why health insurance is needed in the first place. It's not that people don't have the money to pay for their operations, but simply because they don't put away for a rainy day. The lack of foresight of the common person is what makes it necesary to have manditory pensions and manditory healthcare. Really, we are not solving a "need", but a lack of responsability on the public's part.

Because of that, young people will always opt for the "cheaper" health insurance (unless they are hipochondriacs), because they want to have the money to spend "now". Then, when they get old, they whine about the measly healthcare they gave themselves when they were younger. Then some politician is going to find a 65-year-old who looks very young of his age, drag him on TV and say how awfull it is this man has do die because his insurance does not cover a liver transplant (never mind he killed his liver with too much drinking), and demand "restructuring" the system to allow for more "equality".

On your first point, the fact that health care is a "need" does not affect the reality that it is a scarce good which must be rationed somehow. Unfortunately, many people stop thinking once they hit "need." That accounts in part for the existance of so many dishonest, unsustainable health care systems around the world.

On your second point, "Are you trying to justify what appears to be a limitation of access to poor' people," and "is this concern for the poor a real concern on the public's part, or just a political ploy?"

It's not a political ploy, just an acceptance of reality: Our society believes, that individuals should not be deprived of health care for economic reasons. Again, the thinking stops there in most cases. People refuse to think about the moral hazard that most socialized responses to this belief creates. You described one form of this moral hazard - the 20-something who "goes bare" of health insurance. "Hey, they won't let me die if something happens, right? No insurance means more money for beer and parties - yeah, baby!"

Even if I'm willing to let that punk die, I'm not willing to let his child die and neither is anyone else, so that disposes of the "political ploy." This reinforces the idea that we need to be serious here, and face some facts:

1. This is a scarce good; it will be rationed; the rationing will be done either by politicians and bureaucrats, or by individuals operating in a system that works like a free market.

2. Moral hazard is real and can't be ignored. Ultimately, it means that some "non-innocent" adults must pay a price for not accepting the responsibilty to provide for themselves. As a society we are unwilling to make the price a death penalty ("Sorry 'bout the treatable cancer that's gonna kill you, kid - oh, that's gotta hurt"). In the U.S. Medicaid system for the poor the "penalty" is limited choice on routine health care services, potentially second-class service on that routine stuff (but not the catastrophic stuff), waiting, and bureacratic impositions. We are dishonest about the way we do this, and shift much of the burden to health care providers. (That is the mechanism by which the care is made potentially "second class.")

Non-innocent above means I am distinguishing between those who can but don't and those who genuinely cannot provide for themselves. We are also dishonest in this by ignoring that distinction and dumping all of them in the same system.

3. No. 2 means that there will be subsidies to the system. That is, there will be some socialistic wealth redistribution. We can do this in smart ways that replicate the incentives of a free market system, or in dumb ways that explicitly ignore that unlimited demand/limited supply equation, and end up balancing that equation in either:
a. Hidden and dishonest ways, like making people wait.
b. Dictatorial ways, like government rationing of certain lifesaving treatments for certain classes of people. (Like no heart transplants for 86 year olds. I don't disagree that this is a stupid procedure, I just want a system that lets individuals make that choice and has incentives encouraging the right choice.)
c. A combination of a. and b.

The "incentives of a free market system" referred to in No. 3 mean that consumers benefit financially by being frugal, and providers benefit financially by increasing productivity though innovation and good management.

I described in broad brush strokes one potential system that meets these challenges. There are probably others. Here are the three "existential realities" that any sustainable, honest and humane system must account for:

a. Health care is and always will a scarce good and will be rationed, either by price or by government diktat (however the latter is cloaked).
b. People will act in their own self interest, so the incentives in the system must jive with that.
c. Every human is different in his desires, needs, talents and abilities, so a system that puts the choices in the hands of individuals will be superior to one that puts them in the hands of bureacrats and politicians.

______________


BTW, someone will come along any minute and complain that the rich are insulated from the incentive to be frugal in the kind of system I've suggested is best. That is irrelevent to what I've been saying for this reason: (Most) health care providers can't make a living by just catering to the rich, because their aren't that enough rich people to go around.* Most of the demand in this market is from non-rich people. Non-rich people responding to the incentives I suggest will accomplish the rationing task, and will create the incentives for suppliers to increase productivity through innovation and good management.

Given this, losing sleep because some rich guy doesn't care how much he has to pay for a service and so doesn't have to make the tough choices facing others is simply human weakness at work, caving in to envy. There are those who will seek to exploit this weakness and envy in various ways. Sadly, because of widespread ignorance these exploiters will often be successful, and this is why I'm not optimistic that a rational system along the lines I've suggested will be created anytime soon.


* (Most) food providers can't make a living catering just to the rich either, for the same reason. That's why there are a lot more supermarkets than gourmet food shoppes. You will note that most consumers' incentive to be frugal operates quite effectively in those supermarkets - they compete heroically with each other to provide terrific value, and innovation and good management is richly rewarded (or its lack is rigorously punished.)

 

[Pure]

providers benefit financially by increasing productivity though innovation and good management.

consider the Board of Directors of Kaiser Permanente. they look at 'productivity,' i.e., how much labor produces how much results; in this case, people's use of medical services. their 'bottom line' however, is KP's profit. so, for instance, if fewer people process claims (i.e. more slowly) and there are fewer claims per month, 'productivity' may be said to increase [that's 'good management']. the same applies to providing mediocre services. the incentive is to provide the minimum; any cuts benefit KP, unless they start losing clients. in short, the self interest of the insurer is generally at odds with that of the insured, as common experience attests (difficulty in getting claims paid).

so the whole system, while looking to business indicators (productivity, profit, earnings per share, etc.), is set up to do badly by the customer.

 

[Tuomas]

I don't think 'lack of foresight of the common person' explains the need for various kinds of 'insurance' scheme (i.e., the good ones and the rip offs, which many are).

Lots of people put aside for a rainy day, then find there's a flood; i.e., they've save $5000, but not $150,000 for American heart surgery. So the house must be sold (their only major asset).

Insurance is based on spreaking risks, as when farmers insure crops. it seems that's based on humans foreseeing a problem and using their brains to deal with it. i wonder why that's evidence of 'lack of foresight.' the frenzied buying of insurance, often a ripoff, is, i'd submitt, evidence of a effort to foresee extraordinary conditions.

People who buy insurance are demonstrating foresight, yes. However, insurance has to be manditory in many cases because a significant portion of the population does not buy insurance.

As a firefighter and rescue officer, I see quite a few extreme situations. Granted, this is a different country, but of the homes that have burned down last year, none had fire insurance. Fire insurance is also very cheap here. And neither do they have bank accounts bursting with cash.

A national health insurance policy like this would have to be manditory simply because a significant portion -maybe a majority, maybe not- of the population would not have the foresight to buy insurance -let alone buy more than minimum coverage.

Oh, and farmers get crop insurance in the US because they don't have to pay for it

I suppose some lofty abstract theorist like Ms. Ayn Rand could say, "it's always lack of foresight," but that's a very biased view (as a matter of fact, i doubt she did say that; she probably said she didn't want the *government* to insure anything). A main problem is living hand to mouth with inadequate income. (I know, I know, he should just work harder.)

Well, Ms. Rand is conveniently dead, so I guess we won't know what she thought about that, will we?

I'm not sure how to argue this point, because, whatever happens, you'll say, "He should've saved more." And if I say, "His wages didn't allow more," you'll say, "Well he should've taken a second job." etc.

OTOH, i think lots of normally prudent people end up in the doghouse--e.g., those experiencing Katrina. I suppose you'll say 'they should've had extra house of refuge outside the hurricane area.'

I think anyone can end up in the doghouse no matter how prudent they are (the addage, "there but for the grace of God go I" in refrence to a beggar comes to mind), but that doesn't mean we can or should make everyone else responsible for the accidents that happen to people. I don't think it's wrong to help out people who have suffered some kind to tragedy, and I regularly do help people. However, I don't think it should be an obligation.

Its like when you are sitting on a bus, and there are no seats left. A very old lady gets on that can barely stand. Obviously you get up and even help her to take your seat. It would be an entirely different case if she -or someone else- took out a gun, pointed it at you and demanded you get out of your seat because she deserved it more. Being generous or charitable first requires that you give of your own FREE will.

 

[rgraham666]

I disagree with you on that one, Tuomas. Helping people out is an obligation, a duty even.

That doesn't mean I'll let them sponge off me, or society. But I'm not going to let them fall of the edge of the world either because they're too low in the socio-economic pecking order to care about.

 

[Tuomas]

On your first point, the fact that health care is a "need" does not affect the reality that it is a scarce good which must be rationed somehow. Unfortunately, many people stop thinking once they hit "need." That accounts in part for the existance of so many dishonest, unsustainable health care systems around the world.

On your second point, "Are you trying to justify what appears to be a limitation of access to poor' people," and "is this concern for the poor a real concern on the public's part, or just a political ploy?"

It's not a political ploy, just an acceptance of reality: Our society believes, that individuals should not be deprived of health care for economic reasons. Again, the thinking stops there in most cases. People refuse to think about the moral hazard that most socialized responses to this belief creates. You described one form of this moral hazard - the 20-something who "goes bare" of health insurance. "Hey, they won't let me die if something happens, right? No insurance means more money for beer and parties - yeah, baby!"

Even if I'm willing to let that punk die, I'm not willing to let his child die and neither is anyone else, so that disposes of the "political ploy." This reinforces the idea that we need to be serious here, and face some facts:

1. This is a scarce good; it will be rationed; the rationing will be done either by politicians and bureaucrats, or by individuals operating in a system that works like a free market.

2. Moral hazard is real and can't be ignored. Ultimately, it means that some "non-innocent" adults must pay a price for not accepting the responsibilty to provide for themselves. As a society we are unwilling to make the price a death penalty ("Sorry 'bout the treatable cancer that's gonna kill you, kid - oh, that's gotta hurt"). In the U.S. Medicaid system for the poor the "penalty" is limited choice on routine health care services, potentially second-class service on that routine stuff (but not the catastrophic stuff), waiting, and bureacratic impositions. We are dishonest about the way we do this, and shift much of the burden to health care providers. (That is the mechanism by which the care is made potentially "second class.")

Non-innocent above means I am distinguishing between those who can but don't and those who genuinely cannot provide for themselves. We are also dishonest in this by ignoring that distinction and dumping all of them in the same system.

3. No. 2 means that there will be subsidies to the system. That is, there will be some socialistic wealth redistribution. We can do this in smart ways that replicate the incentives of a free market system, or in dumb ways that explicitly ignore that unlimited demand/limited supply equation, and end up balancing that equation in either:
a. Hidden and dishonest ways, like making people wait.
b. Dictatorial ways, like government rationing of certain lifesaving treatments for certain classes of people. (Like no heart transplants for 86 year olds. I don't disagree that this is a stupid procedure, I just want a system that lets individuals make that choice and has incentives encouraging the right choice.)
c. A combination of a. and b.

The "incentives of a free market system" referred to in No. 3 mean that consumers benefit financially by being frugal, and providers benefit financially by increasing productivity though innovation and good management.

I described in broad brush strokes one potential system that meets these challenges. There are probably others. Here are the three "existential realities" that any sustainable, honest and humane system must account for:

a. Health care is and always will a scarce good and will be rationed, either by price or by government diktat (however the latter is cloaked).
b. People will act in their own self interest, so the incentives in the system must jive with that.
c. Every human is different in his desires, needs, talents and abilities, so a system that puts the choices in the hands of individuals will be superior to one that puts them in the hands of bureacrats and politicians.

______________


BTW, someone will come along any minute and complain that the rich are insulated from the incentive to be frugal in the kind of system I've suggested is best. That is irrelevent to what I've been saying for this reason: (Most) health care providers can't make a living by just catering to the rich, because their aren't that enough rich people to go around.* Most of the demand in this market is from non-rich people. Non-rich people responding to the incentives I suggest will accomplish the rationing task, and will create the incentives for suppliers to increase productivity through innovation and good management.

Given this, losing sleep because some rich guy doesn't care how much he has to pay for a service and so doesn't have to make the tough choices facing others is simply human weakness at work, caving in to envy. There are those who will seek to exploit this weakness and envy in various ways. Sadly, because of widespread ignorance these exploiters will often be successful, and this is why I'm not optimistic that a rational system along the lines I've suggested will be created anytime soon.


* (Most) food providers can't make a living catering just to the rich either, for the same reason. That's why there are a lot more supermarkets than gourmet food shoppes. You will note that most consumers' incentive to be frugal operates quite effectively in those supermarkets - they compete heroically with each other to provide terrific value, and innovation and good management is richly rewarded (or its lack is rigorously punished.)

OK, I can't find a single thing to disagree with there. You certainly have a better finger on the medical issue's pulse than I do. Will you please run for President? Please? I would like to volunteer as your campaign manager

May I copy this and show it to a couple of people I know?

 

[Tuomas]

I disagree with you on that one, Tuomas. Helping people out is an obligation, a duty even.

That doesn't mean I'll let them sponge off me, or society. But I'm not going to let them fall of the edge of the world either because they're too low in the socio-economic pecking order to care about.

I disagree.

First and foremost, because you just can't help everyone. If it's your obligation to help everyone, why aren't you in Africa right now growing crops for the needy? If it's your obligation to help people, where were you while Alcides Segovia was dying?

Secondly, who are you to judge who helps who and why?

Thirdly, you are not the only person in the world.

Fourthly, not all the facts are accounted for, and maybe you can't help while everyone else thinks you can.

Fifthly, what exactly constitutes "help"? What if what you think is help isn't really help ... are you obligated to go against your principles?

Case of the old lady on the bus: You are not the only passenger, and if you don't get up, someone else probably will. You might have a broken leg that does not allow you to give up the seat. She might be getting off two blocks away, so having her sit down and then get up again is actually more effort for her than just standing there for a second. Any other circumstance that I can't think of.

So, I very much disagree; you can't be obligated to help. All obligation ends up in the use of force to ensure compliance. Escentially, everything that you say should be an obligation means you are putting a gun to the head of someone who doesn't want to do it.

And are you really going to jail someone for not giving a quarter to a beggar?