Saturday, August 29, 2009

Post Summer Developments - is rational conversation possible now?

One senses that we are at a pivotal moment in the early history of this administration.

Highest on the agenda of course is the health care initiative. What will happen when Congress reconvenes fresh from the experience of the summer town-hall meetings? The Republican strategy of full-out opposition to the health-care bill, in its various incarnations, will be put to the test. Will the bill die, or will some variant, however watered down, pass in both houses? The former would be the preferable outcome. But whatever happens, this has been an eye-opening episode not only for the Obamaniacs, but also for the rest of us - to realize what makes these guys tick. They are not the sophisticated idealists they portrayed in the slick presidential campaign. Rather, as one might have suspected, they are brutal, power-hungry politicians in single-mined pursuit of a slew of unrealistic goals designed to buy them support with special interests and a legacy in history. But what will they, the Obamaniacs, really be remembered for?

The health-care power-grab should have been an opportunity to clarify for the American people. instead it has left us even more confused. To be sure, health-care is multi-faceted and complicated. But the various proposals have not helped. They are long and involved and only those energetic enough to examine them carefully know what they really say. In addition, the picture has been clouded by the Obamic spin-doctors - who say things like "America has the highest cost health-care in the world" and various other untruths and half-truths designed to sow dissatisfaction and expectation for improvement if only we will accept "change." As complicated as it is there are a few simple facts and propositions worth noting - these should form the basis of an understanding prior to any intelligent conversation about change.

  1. When comparing the cost of U.S. health-care with that in other countries, like France and England, one needs to include the cost per taxpayer in taxes to fund the health-care system.
  2. The numbers frequently presented for the number of "uninsured" in the U.S. are misleading. They are overstated in that they fail to include many who have insurance - like illegal aliens insured under false identities. They also mislead by not noting that almost no-one in America gets turned away from health-care - though there are great variations in quality, even the lowest quality care in America is better than most places in the world. The poorest patients, who cannot pay, are routinely subsidized by the rest of us, who pay high prices for care and, consequently, for insurance premiums. We don't need a government initiative to make this happen, it's happening already and it does not work so badly. It is what economists call price-discrimination where those who can, pay more to help those who can't.
  3. Having said this, it is undeniable that the price of health-care is high and rising at a rate out of sync with other technology-driven sectors of the economy. There is something fishy going on. But to sort this out one has to begin from the most basic and undeniable of propositions: To reduce the price of health-care one has either to increase the supply or decrease the demand or both. There is no escape from this basic logic. If the price is "too high" it can only mean one thing - the supply is too low relative to the demand. In all of the various health-care proposals out there now and in the past generation I do not recall one proposal to significantly increase the supply of health-care services. Instead they all amount to pushing down the cost of what we have or reducing the demand - though they seldom say so. They all involve some sort of costly and frustrating rationing system.
  4. Chief among the restrictions on supply-growth is the shortage of doctors. This can be remedied by graduating more doctors - increasing the number of medical schools and their enrolment, by reducing the costs of training, for example by allowing entry to medical school without an undergraduate degree (as is the case in most other countries who produce very fine doctors), by expanding the scope of tasks that can be done by lesser trained professionals, like physician's assistants, by breaking the stranglehold that the medical profession has on the production of doctors and by recreating the attractiveness of medical practice for young idealistic, ambitious Americans.
  5. This last assertion relates to the fact that the various initiatives over the years, producing more administrators, more regulations and restrictions on doctors and patients, have resulted in a beating down of the joy of medical practice. The doctor-patient relationship needs to be restored - managed-care has not worked. With more doctors and less regulation second-guessing what they do, prices will come down and satisfaction will go up.
  6. Reform of tort law is absolutely key. The cost of malpractice insurance is debilitating. It is driven by the propensity of ambulance-chasing lawyers to prey on the predilection of juries to make ridiculous awards to patients they identify as powerless and poor against doctors they identify as powerful and rich, regardless of the law; as a result of which insurance companies prefer large settlements to even costlier law-suits, hence we have astronomical insurance premiums. First, abolish jury trials for malpractice suites. They are too complicated and involve statistical and medical evidence - there is precedent for this. Second, tighten up the standards for proof of malpractice and allow the use and upholding of private contracts to limit liability. This could all be done without spending a cent and would save hundreds of billions of dollars.

This is what an intelligent conversation in health-care would look like. What about some of the other issues on the table? Here are a few pointers.

Global warming: fact - there is not much we can do to stop it (if it is real). The latest evidence indicates that European economic growth will benefit slightly as a result of it. Third world countries would face the costliest adaptation, but its hard to predict. Methane reduction makes more sense than CO2 reduction. Taxing CO2 emissions is stupid.

Cash for clunkers. Newsflash - when you subsidize the purchase of an item and make it artificially attractive you do not improve the economic prospects for the long-term production of that item. The subsidies have to be paid for and should be added to the price of the car. This does nothing for the auto industry. It is simply an exercise in expensive and futile feel-good income re-distribution. This is not rocket science.

The stimulus - ah the stimulus! It has not worked, it has not even been tried. Most of the money created by the Fed is sitting in the balance sheets of the commercial banks waiting to explode into inflation. Hero Bernanke says he can stop this from happening. I want to know how. About 10% of proposed Treasury spending has actually been made and most of it has gone to the state governments for them to use in their favorite interest satisfying projects. The number of jobs lost since Obama said he would create three million jobs is about three million jobs. Not to worry, genius Nancy Pelosi tells us that in the absence of the (absent) stimulus, six million jobs would have been lost. I wonder how she knows this. Anyway, it's a nice idea, very hard to disprove.

The truth is, the economy is recovering in spite of and not because of anything the government has done. The market works - if it is allowed to. When housing prices fall to reasonable levels and resources have moved to other sectors, the economy will begin to grow again.

After the summer will we have a muting of this brash bunch of beatniks and the possibility of more rational conversation? Once certainly hopes so.