Know the Truth About Government Health-Care: The Video.

ObamaCare: the repeal of first stage economic thinking

The government solution to a problem is usually as bad as the problem. - Milton Friedman

Thomas Sowell has written extensively that politicos have a short political time horizon i.e. the next election cycle. Politicos then match their short term political time horizon to first stage economic effects of policy proposals. Matter-of-fact, Sowell wrote an entire book regrading first stage economic thinking entitled Applied Economics, thinking beyond stage one. (1)


Government solutions and the ObamaCare Repeal vote Wednesday 01/19/2011

The vote next week to repeal ObamaCare is odd out. That is, Friedman's advice is coming home to roost. Politicos always cave-in or never can quite muster a vote on the concept: "The Government solution to the problem is usually as bad as the problem". Never quite bring ourselves to test Friedman's quote. Ah, but the evil of it all.....next Wednesday Friedman is coming to bat.

Political time horizons and first stage economic consequences

Friedman's observation above and Sowell's "thinking beyond stage one" are worth considering regarding ObamaCare and much legislation in general. The basic premise is that legislation can have immediate economic consequences that are favorable. This short term favorable economic consequence matches the short term political time horizon of politicos. However, the exact same legislation has long term unfavorable economic consequences (known-knowns) as well as long term cascading unintended economic consequences (known-unknowns).

The long term economic consequences of legislation is not a concern of politicos as their focus is on a short term political time horizon i.e. next election. Hence legislation becomes a tool to create first stage favorable economic consequences to match a short term political time horizon. The problem immediately arises that legislation in fact creates long term economic consequences. These long term consequences are what James and Jane Goodfellow, their children, grand children, and so on must live with for years and decades to come. The Politico on the other hand merely wants to win the next election.

Therefore we have policy making politicos of the short term world creating long term economic consequences for the long term world that James and Jane Goodfellow live within. Real life examples abound. Social Security had major short term favorable economic consequences and hence matched the short term political time horizon of legislators of the time. Decades later James and Jane Goodfellow find that the unfunded future liabilities of Social Security are daunting. Merely take the term Social Security in the prior sentence and plug in Medicare, Medicaid, welfare, food stamps, public sector pensions, etc., etc.. The legislation created short term favorable economic consequences followed by cascading unintended economic consequences.

Behind the curve, ahead of the curve, and the 70 year dream

An odd out item with ObamaCare aka socialized medicine is that certain political groups have been pushing for socialized medicine for decades and decades stretching back at least seventy years. The socialized medicine scheme, when debated in 2009 and 2010, was referred to as a "dream" by proponents. A seventy year old dream.

Exactly what grand scheme had been developed and tested during these seventy years of dreaming? If one wants an item for seventy years wouldn't one have developed a comprehensive plan with details? Apparently not. In essence seventy years of a dream of socialized medicine was kept right in the dream world with nothing more developed than a fuzzy theme with no plan. For a group that wants to rely so heavily on government central planning it seems odd that for seventy years they forgot to develop a central plan. You might say proponents were/are seventy years behind the curve as ObamaCare was/is a cobbled together plan that boils down to a scheme of centralized price fixing. Problem is: central planning fails miserably and price fixing schemes have never worked in all of economic history. (2) (3) Brilliant! A failed delivery system delivering a known failed result!

However, there appears to be a vast majority of James and Jane Goodfellows that have looked ahead of the curve. You might even say, that for once, politicos have been caught with their hands in the short term political time horizon cookie jar. One might even speculate that James and Jane Goodfellows have come to the point of clearly understanding and adopting the classic essay by William Graham Sumner "The Forgotten Man". That is, the Goodfellows clearly understand they have in fact become the Forgotten Man: "He is the victim of the reformer, social speculator and philanthropist, and I hope to show you before I get through that he deserves your notice both for his character and for the many burdens which are laid upon him". (4)

So many social insurance and social welfare plans have exposed themselves as failures. That their long term economic consequences and cascading unintended economic consequences are failures for all to see. That massive hulking failures such as Social Security, Medicaid, and Medicare, have shown the public that long term dire consequences await them and their children. That the dreams of certain politicos become nightmares of the first order.



Behind the curve, politico's political time horizon, and a failed delivery system with known failed results.

The repeal vote, which is a vote on HR 2, becomes an affront to proponents of ObamaCare. How could anyone want to repeal a dream they have held for 70 years? A dream that in their view has become a reality.

The repeal vote is more reality than dream. The seventy year dream was really a theme with no plan. Then the plan was cobbled together based on politico's using first stage economic thinking to match their political time horizon. With the entire plan based on using a failed delivery system with known failed results. The problem is that the plan does not even have first stage favorable economic consequences. That the plan right out of the gate failed. Hence a cobbled together plan that was suppose to have, at the very least, first stage favorable economic consequences became an immediate cascading unintended economic consequence nightmare. That is, the politico's that are proponents of ObamaCare were so silly as to produce a plan that doesn't even create the illusion of favorable results to match their very own short term political time horizon. In other words, proponents of ObamaCare by their very own design produced the stage, set the stage, and generated the momentum for the repeal vote.

Collectivism's long history of failure

One only needs to examine history to see how collectivist plans fail. First we have the dawn of recorded history up to the Agricultural Revolution that was century-in, century-out of collectivism. Yes, collectivism is the oldest of economic systems. The results of collectivism up to the agricultural revolution was that mankind lived in an environment of constant starvation. Life was basic subsistence. Basic subsistence handed down from one generation to the next.

Collectivism's results were so poor that Malthus developed his theory of the Malthusian Population Trap. That mankind was stuck in a perpetual environment of basic subsistence and starvation as population was growing faster than food production. That mankind was stuck in a never ending battle to merely sustain life.

What changed the Malthusian Population Trap? The advent of private property agriculture in the Agricultural Revolution. Private property farming suddenly produced abundance in agriculture and man could for the first time feed himself. Out with Malthus in with abundance. (5)

Along the way private property, private property rights, and the price system developed. Note that private property, private property rights, and the price system "developed". That is, no central authority decided upon private property, private property rights, and the price system. Mankind merely stumbled into the systems. The systems occurred due to decentralized means. (6)

A basic premise should appear very quickly to the reader: decentralization created abundance and collective centralized planning created never ending subsistence results.

A major source of objection to a free economy is precisely that it ... gives people what they want instead of what a particular group thinks they ought to want. Underlying most arguments against the free market is a lack of belief in freedom itself. - Milton Friedman

If collectivism is a failure why do collectivist propositions such as ObamaCare continue to be proposed?

The answer goes back to the constrained vision of mankind and the unconstrained vision of mankind.
The unconstrained vision of mankind, held by most collectivists, is that the nature of mankind can be changed, improved, and molded only by institutions of state. That a central authority [state] through governmental institutions is the only way to improve the nature of mankind.(7)


A review of the basis for repeal and first stage economic thinking

Prior to the repeal vote next week its likely a good idea to review the laundry list of basic errors within ObamaCare. Although this is not a complete list it should suffice to say that the problems are those of a plan doomed to fail:


(1) Federal bureaucrats overriding state rights and circumnavigating the McCarran-Ferguson act.
(2) The demise of consumer directed health-care.
(3) ObamaCare purposely designed to collapse into a single payer system.
(4) Another unsustainable entitlement atop of current unsustainable entitlements.
(5) A central planning scheme that is a known failed delivery system.
(6) A plan based on price fixing that results in quantitative and qualitative reduction in supply aka rationing.
(7) Ultimate third party decisions removing consumer choice.
(8) An unconstitutional individual mandate.
(9) The error of categorical risk management.
(10) A plan based on reverse risk management.
(11) A plan that fails to address let alone bend the cost curve.
(12) A plan that is based on the fallacy of universal coverage as universal coverage does not mean universal access and access will deteriorate.
(13) A plan with massive administration needs at a massive price.
(14) A plan that fails to address the allocation of scarce resources with alternative uses.
(15) A plan that fails the risk management matrix which is an axiom of insurance theory.
(16) Shifting costs to states in the form of massive increases in Medicaid that will bankrupt already stained state budgets.
(17) Massive tax increases.
(18) Lose of individual freedom.
(19) Add your basis for repeal here ---> ________.

Also, one sometimes will refuse to let issues stay settled by the adverse decision of such a procedure, specifically when the wrong decision is worse even than the disruption and costs of refusing to accept it, when the wrong decision is worse than conflict with those on the other side. - Robert Nozick

Summary

If one wishes to reform, improve, stream line, create more efficiency, allow for freedom of choice, reduce costs then ObamaCare needs scrapped. The ObamaCare plan has so many built-in failures that beginning anew is the only course of action. Ford once built the Edsel and they scrapped it. Howard Hughes built the H-4 (The Spruce Goose) and he scrapped it. There comes that point that a failed plan needs scrapped and a new course of action is desirable.


Notes


(1) Applied Economics, Thinking Beyond Stage one, Thomas Sowell.

(2)At 35, Nixon freeze still chilling, William Neikirk, The Swamp. http://www.swamppolitics.com/news/politics/blog/2006/08/at_35_nixon_freeze_still_chill.html

(3) Nixon, Price Controls, and the Gold Standard, excerpt from Commanding Heights by Daniel Yergin and Joesph Stanislaw, 1977, ed., pp. 60-64. http://www.pbs.org/wgbh/commandingheights/shared/minitext/ess_nixongold.html

(4) The Forgotten Man by William Graham Sumner, 1876 http://oll.libertyfund.org/index.php?option=com_staticxt&staticfile=show.php%3Ftitle=1654&layout=html

(5) From Economic Man to Economic System, Harold Demsetz

(6) Hayek: His Contributions to the Political and Economic Thought of our Time, Butler and Riggenbach.

(7) A Conflict of Visions, Thomas Sowell.

ObamaCare: more unintended consequences

As mentioned here and in other articles ObamaCare, the unread, un-debated , and poorly crafted legislation has immediately yielded consequences.

The final 2000+ page bill went unread, un-analyzed, and un-debated. That is to say, if common sense had been applied, the amended Senate bill which became the ObamaCare bill, required weeks if not months to be read and analyzed. Then the results of the analysis needed debated to be sure wording and intent was correct. However, the bill was rushed through unread and un-debated.

It boils down to this statement by Nancy Pelosi: "But we have to pass the bill so that you can find out what is in it, away from the fog of the controversy". (1)

Brilliant!


Senators, representatives, and staffers to be removed from current coverage?

Although the electorate demanded that if Congressional Democrats thought that ObamaCare was so grand, that Congress should participate in ObamaCare as well. However, Congress supposedly wrote the bill in such a way to exempt themselves from ObamaCare. Or did they?

Apparently passing the ObamaCare bill, unread and un-debated, has left senators, representatives and their staffers not able to retain their current coverage. Ironic?

Please see the following excerpts from the New York Times article entitled 'Lawmakers Baffled by Obama-care':

**"It is often said that the new health care law will affect almost every American in some way. And, perhaps fittingly if unintentionally, no one may be more affected than members of Congress themselves.

In a new report, the Congressional Research Service says the law may have significant unintended consequences for the “personal health insurance coverage” of senators, representatives and their staff members."

**"For example, it says, the law may “remove members of Congress and Congressional staff” from their current coverage, in the Federal Employees Health Benefits Program, before any alternatives are available.

The confusion raises the inevitable question: If they did not know exactly what they were doing to themselves, did lawmakers who wrote and passed the bill fully grasp the details of how it would influence the lives of other Americans?

The law promises that people can keep coverage they like, largely unchanged. For members of Congress and their aides, the federal employees health program offers much to like. But, the report says, the men and women who wrote the law may find that the guarantee of stability does not apply to them.

“It is unclear whether members of Congress and Congressional staff who are currently participating in F.E.H.B.P. may be able to retain this coverage,” the research service said in an 8,100-word memorandum.

And even if current members of Congress can stay in the popular program for federal employees, that option will probably not be available to newly elected lawmakers, the report says." (2)

ObamaCare to control insurance prices?

Leading up to the vote on ObamaCare, vilification of the insurance industry along with health insurance price controls was the mantra of Mr. Obama. Of course its economic axiomatic that price controls merely cause non-price rationing of one sort or another e.g. time/quality and reduces supply.

Please see these excerpts from the LA Times.com article entitled 'Healthcare overhaul won't stop premium increases':

**Public outrage over double-digit rate hikes for health insurance may have helped push President Obama's healthcare overhaul across the finish line, but the new law does not give regulators the power to block similar increases in the future. "

**"The irony here is that it was the Anthem rate increase that breathed new life into the healthcare bill," said Jerry Flanagan, medical policy director of Consumer Watchdog, a longtime supporter of tougher premium regulation. "But there is nothing in this bill to guarantee that it doesn't happen again."

The lack of muscle is stoking concerns that more rate jumps -- and an angry backlash from ratepayers -- could undermine support for implementing the healthcare overhaul.

Insurance industry officials say that talk of more regulation is misguided and have urged federal officials to focus instead on containing rising medical costs, which help drive up premiums.

"Politicians are much more comfortable looking at healthcare premiums," said Karen Ignagni, president of America's Health Insurance Plans, the industry's Washington-based lobbying arm.

Ignagni, as well as some independent healthcare experts, said policymakers should look at ways to control what hospitals and other providers charge, although few elected officials have shown much appetite for doing so." (3)

Apparently, the unread and un-debated ObamaCare bill lacked any wording leading to any mechanism to apply price controls. Hence ObamaCare has not ability to apply price controls.

Go figure!

These consequences seem very ironic. Or is it really better summed up by: "But we have to pass the bill so that you can find out what is in it, away from the fog of the controversy".

(1)http://hotair.com/archives/2010/03/09/pelosi-we-need-to-pass-obamacare-so-that-the-public-can-find-out-whats-in-the-bill/

(2)http://sweetness-light.com/archive/nyt-lawmakers-baffled-by-obama-care

(3)http://www.latimes.com/features/health/la-na-health-premiums13-2010apr13,0,6241013.story

ObamaCare: Centralized Control

Two major objections to the construct of ObamaCare are:

(1) the elimination of pre-existing conditions and the unintended consequences that will occur,

(2) price controls that merely lead to non-price rationing.

An article appeared in the Wall Street Journal on Friday April 9th, 2010 entitled The Massachusetts Insurance Blackout, Insurers go on strike after Deval Patrick imposes price controls.

Please see excepts from the article below:

"This week it became impossible in Massachusetts for small businesses and individuals to buy health-care coverage after Governor Deval Patrick imposed price controls on premiums. Read on, because under ObamaCare this kind of political showdown will soon be coming to an insurance market near you."

"Yet all of the major Massachusetts insurers are nonprofits. Three of largest four—Blue Cross Blue Shield, Tufts Health Plan and Fallon Community Health—posted operating losses in 2009. In an emergency suit heard in Boston superior court yesterday, they argued that the arbitrary rate cap will result in another $100 million in collective losses this year and make it impossible to pay the anticipated cost of claims. It may even threaten the near-term solvency of some companies. So until the matter is resolved, the insurers have simply stopped selling new policies."

"One irony is that Mr. Patrick's own Attorney General and his insurance regulators have concluded—to their apparent surprise—that the reason Massachusetts premiums are the highest in the nation is the underlying cost of health care, not the supposed industry abuses that Mr. Patrick and his political mentor President Obama like to cite. "

"On top of that, like ObamaCare, integral to the Massachusetts overhaul are mandates that require insurers to cover anyone who applies regardless of health status or pre-existing conditions and to charge everyone about the same rates. This allows people to wait until they're about to incur major medical expenses before buying insurance and transfer the costs to everyone else. This week Blue Cross Blue Shield reported a big uptick in short-term customers who ran up costs more than four times the average, only to drop the coverage within three months."

"Last July, Charlie Baker detailed similar gaming at Harvard Pilgrim, the health plan he used to run. Between April 2008 and March 2009, about 40% of its new enrollees stayed with it for fewer than five months and on average incurred costs about 600% higher than the company would have otherwise expected. "(1)

The Massachusetts plan was the blueprint for ObamaCare. Opps! Price controls have never worked, never-ever worked, in all of recorded economic history. Its an economic axiom that price controls merely cause non-price rationing of one sort or another (time/quality) and consequently supply shrinks. (2)

Pre-existing conditions is an underwriting criteria that controls cost in a private welfare system (private insurance). Removing underwriting criteria merely leads to cost acceleration for the group of insureds making up a private welfare system. Removing underwriting criteria also can threaten the solvency of a private welfare system. (3)

The gathering back lash and the prior protests regarding socialized medicine comes down to placement of control. The root objection is placement of control.

Thomas Sowell’s example of the mighty forest best describes the basis of attitudes regarding "control" within economics. The forest is a very efficient system. However, this efficient system is generated by random items such as which acorn grows or rots, where a leaf will fall upon the forest floor, which blade of grass will grow etc., etc.. Hence we have random items with the end product being a very efficient forest. (4)

It’s the natural eco-system of the virgin forest. That this natural eco-system was produced through random events that produced an end result of a highly efficient forest eco-system.

A certain sub-section of ideologues think that “control” is necessary as randomness scares them. The inherent freedom of randomness scares them and hence the answer is to control by removing the freedom of randomness.

The freely occurring randomness of a free market produces efficient results just like the randomness of the forest eco-system. The free market is made up of millions upon millions of economic decision makers who as a group are making zillions of economic decisions per day. Yet each decision maker on the whole makes rational decisions in their best self interest. They also make those decisions on the basis of the simplest least expensive path that actually solves their particular problem. Hence the random nature of a free market is really the rational, simplest, and most cost effective economic organization that actually solves economic problems.

Conversely, a planned economy such as the former Soviet Union was an attempt by few to plan the zillion decisions made daily. The most glaring example of the control experiment by the Soviet Union was to set a hundred thousand prices every year. The price setters only had mundane knowledge to set a very few prices with the remaining prices set as a pure guess. Once they set prices then the random nature of economic decisions were constrained by price fixing and shortages occurred over and over while surpluses occurred in other sectors. Hence the control produces a very, very inefficient system of allocation of scarce resources to competing ends. (5)

Remember, all economies (capitalistic, socialistic, monarchy, fascist, communist, etc.) function under the axiom of the allocation of scarce resources to competing ends.

“Control” in the free market is the individual making rational economic decisions in their own self interest leading to the least expensive and simplest solutions that actually solve for an economic problem. When you remove the control from the individual and allow the state to control, the result is irrational decisions leading to the most expensive and complicated solution that does not in fact solve the problem.

It’s the placement of “control” that divides ideology of free markets vs. other planned authoritative schemes.


(1) http://online.wsj.com/article/SB10001424052702304198004575171782805022028.html?mg=com-wsj

(2) http://thelastembassy.blogspot.com/2009/12/socialized-medicine-scheme-bending-cost.html

(3) http://thelastembassy.blogspot.com/2009/10/fun-and-games-with-preexisting.html

(4) Intellectuals and Society, Thomas Sowell

(5) http://thelastembassy.blogspot.com/2009/11/socialized-medicine-scheme-and-central.html

The Socialized Medicine Scheme: Bending the Cost Curve

Diagram of Marginal Cost

Proponents of the socialized medicine scheme offer a talking point entitled Bending the Cost Curve. Sounds impressive does it not? However, is the talking point put forth of bending the cost curve merely price controls in disguise?



Definition of Cost Curves:


(1) Short run and long run average cost curves are U shaped,

(2) Short run cost curves are U shaped because of diminishing returns,

(3) Long run cost curves take on a U shape because economies and diseconomies of scale. (1)


Shape of the Cost Curve?

Bending the Cost Curve, that "U" shaped curve in the diagram above, can surely be a different shaped "U". However, the shape will always be "U". Which means marginal cost rises. (2) (3)

Its not about Cost Curves

The concept of a cost curve is being hijacked by politicos when they use the phase "Bending the Cost Curve". That is, there is a complete disregard for the economics of the cost curve itself and merely a catch phrase has been developed that sounds as if sound economics are being applied.

The vast majority of those using the talking point Bending the Cost Curve have no earthly idea what a cost curve is nor the economic theory surrounding the cost curve. In other words, in the current heath-care debate, bending the cost curve is not economics nor political-economy. Its pure politics. Its political speak.

Serious Discussions of Changing the Cost Curve of Health-Care

There are serious discussions on how to lower costs within the realm of health-care. Sound strategies exist that pertain to cost factors such as more efficient organization, physician supply, institutional factors, comparative effectiveness of research, reform medical liability, etc., etc.. In other words, strategies that directly effect a cost curve. (4), (5), (6).

There is a sea of research on how to effectively reduce health-care costs. Ideas and procedures that really do address the concept of a cost curve.

Enter the Politicos

With the political speak talking point of Bending the Cost Curve firmly in hand, politicos merely take the path to price controls. In other words, when politicos say bending the cost curve they really are talking about price controls.

Politicos want votes not real results. Rather than addressing the true problem associated with cost, its more politically expedient to merely apply price controls. Politicos end up with a price argument even though they began with a cost argument. Remember, we are going to bend that mean old cost curve. Forget that, attack price.

The political argument for price controls is articulated with sub-talking points such as the percentage of Gross Domestic Product the USA spends on health-care in comparison to other economies (argued that total price is too high), affordability (argued as price being too high), that the uninsured are uninsured do to price, etc., etc. The point being the politicos make a price argument not an argument for strategies regarding cost factors i.e. bending the cost curve gets thrown out the window in favor of a price argument.

The economic disconnect is that final price is made up of a series of costs. That if you concentrate on cost factors, and truly bend the cost curve then you will have materially changed final price.

However, if you attack final price, and make price a political issue, then somehow artificially reducing price will affect cost? That's the cart before the horse.

Price Control Strategy

You are going to be very hard pressed to find one case in economic history where price controls have ever worked. (7) (8) Then why use price controls? Because really bad economic ideas never die they merely get recycled and sold to the gullible.

What the politicos want you to think is that they have a concern with cost (don't forget that bending the cost curve mantra) but in fact their argument is price and the solution is price controls.

What do Price Controls Produce?

Price controls always end with the same result: depressed supply of the item. Supply falls and rationing of the item occurs.

Sure seems like the rationing argument crops up over and over again within the health care debate. Odd huh?

Price Controls with Increased Price?

As mentioned above, really bad economic ideas such as price controls never die. However, really bad economic ideas can be made even worse. Really? Sure! Why not increase the price first, add some taxes to further increase the price, take the increased revenue produced by the increased price and redistribute to millions of uninsured and make them insured hence creating a demand shock, then slap on price controls and have a real mess. Sounds like a plan!

No Price Control Scheme is Complete without Big Government

When you discuss price controls you are talking bureaucracy. If you are going to control price, you will need plenty of rules and regulations. No rules and regulation manual is complete without an army of government bureaucrats. The current health-care legislation creates upwards of 110 new government departments. Now that's bending the cost curve!

Summary

Politicos are using a the slogan "Bending the Cost Curve" with no real understanding of the economic theory of cost curves. (9) That politicos want you to feel they are concerned with cost when in fact their strategy boils down to price control.

(1) http://www.economicshelp.org/blog/economics/diagrams-of-cost-curves/

(2) http://www.economicshelp.org/microessays/costs/diminishing-returns.html

(3) http://csob.berry.edu/faculty/economics/CostCurves/CostCurves.htm

(4)http://content.healthaffairs.org/cgi/content/abstract/28/5/1260

(5) http://www.kaiserhealthnews.org/Daily-Reports/2009/July/17/CBO.aspx

(6)http://www.brookings.edu/reports/2009/0901_btc.aspx

(7) http://freedomkeys.com/pricecontrols5.htm

(8) http://austrianeconomics.wikia.com/wiki/Price_controls


(9) http://www.politico.com/livepulse/1009/CBO_Bend_the_cost_curve_what_does_that_even_mean.html