Friday, October 15, 2010

ObamaCare: the ultimate third party decision

The YouTube video above is a Fox Business Network interview with William Poole. (1) Poole is an economist and past chief executive of the Federal Reserve Bank of St. Louis and currently is with the Cato Institute. (2) Your focus should be from 2:35 of the interview until the end of the interview.

Poole is merely stating the empirical evidence of Medicare funding in particular, and entitlement funding in general, being completely unsustainable at any possible tax rate within a market economy. In other words, the current unfunded future entitlements of +100 trillion dollars is not possible to finance. Note that Poole is discussing current unfunded entitlements before the addition of the ObamaCare entitlement.

Poole mentions "the federal government promises" when referring to entitlements. Federal government promises likely can be stated more concisely as: past and present politicos making promises, through the mechanism of government. In other words, government is merely the mechanism to deliver promises of politicos.

Promises made by politicos through the mechanism of government are related to discussions long made by Thomas Sowell regarding the concepts of political time horizons and third party decisions. (3) (4) (5) (6) (7) Sowell points out that politicos have a short term political time horizon. Politicos match their short term political time horizon to economic policy that yields short term economic consequences. That leaves the rest of us to live with the long term cascading unintended economic consequences of such policy. Or alternatively, politico promises are based on short term economic effects that match the short term political time horizon (the next election) with the long term cascading unintended economic effects of the promise accumulating into a series of politico promises that can not possibly be financed (we have arrived at the zenith of accumulated cascading unintended economic consequences related to politico promises).

Politicos are making third party decisions for first party promise participants and first party promise tax payers. Current and future participants as well as current and future tax payers are left to pick up the pieces of the promise with the third party (politicos) paying no direct cost for purposely matching short term economic effects with their short term political time horizon (reelection). That is, the first party suffers from the third party decision, with the third party (politicos) walking away and suffering no direct cost for their third party decisions.

ObamaCare is arguably the ultimate third party decision. With current potential participants and current potential tax payers standing as the majority in opposition, the third party purposely made a minority decision and imposed that decision upon first party (you).

With entitlements in general, and medicare specifically, being unsustainable at any possible tax rate in a market economy, certain politicos went to their playbook and exercised the game plan of matching short term economic effects to a short term political time horizon. However, passing additional entitlement legislation in a known unsustainable finance environment and against the majority of the electorate, will likely turn out to be a promise too far.




(3) Economic Facts and Fallacies, Thomas Sowell

(4) Applied Economics, Thomas Sowell

(5) A Conflict of Visions, Thomas Sowell

(6) Intellectuals and Society, Thomas Sowell

(7) Basic Economics, Thomas Sowell

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