Clive Crook from FT and Peter Orszag are wrong on government health care

I am referring to Clive Crook's article on Medicare and Peter Orszag's article. 

I am a Financial Times temporary subscriber (as in I won't renew my subscription when it will come up). I think FT is a leftist piece. (which is curious since finance should be about markets).

The US system is very expensive, as noted by Peter Orszag today; but it does the job for most Americans. 

What Obama and you have in mind is to replace the balkanized system that every state has with a monster federal system. 

Crook says that a Medicare-for-all system would give US a truly universal coverage and will better control the costs. 

Canadian experience, however, shows the exact opposite - a truly government system is absolutely unable to contain costs. Not only expenses increased from 77 billion CAD in 1997 to 177 billion CAD in 2008, but the quality improvement is nowhere to be found (that is I think the Canadian system at this moment is the worst ever). I lived in Canada until early this year - I know what I am talking about.

 

You must have near infinite patience to wait in the hospital emergency room. As for seeing your family doctor (1 million people out of 13 million in Ontario, Canada don't have one) it takes from a week to a few weeks. However, going from there to a specialist takes a few good months (unless you are connected with the mighty Ministry of Health bureaucracy). From a specialist to surgery it takes a few more months. 

Also, in Canada, there were cases of women having miscarriages in the emergency ward (after waiting a few good hours for a help that never came). Look at this case in Alberta.

What Obama wants to do is to shove some kind of Medicare down everybody's throats. Of course he will say he only wants to improve accessibility and lower costs, but if history is any guide, Obama's talk and actions point in completely different directions. Actually if he really wants to make America competitive (as Orszag claims in his piece) there is a better solution: get out of the business altogether. Don't provide any medical services. Just pay for the handicapped and the elderly to provide their own care from a private hospital/practitioner. 

But this won't fly. Obama's supporters in the nurses unions would not vote for him and he will lose his job come 2012. He would have to go back to community organizing, writing fluffy books and rubbing shoulders with Ayers and Wright. His wife also won't be able to be a trustee to a hospital associated with the University of Chicago, since Obama won't be able to direct pork from taxpayers to the above mentioned hospital. 

What Orszag said today in FT is no news. We all know that the costs of medical insurance is up and it seems (to him) that prices have no chance of abating. And while it's true that US health care lacks in quality (especially from government hospitals), he fails to mention that the runner up regarding costs (Canada) is the worst in OECD in terms of "bang for the buck". US care is more expensive, but it achieves more. From this perspective, I note Orszag's comments as misleading. 

What Orszag suggests is to 

- ration care: reduce it by 700 billion a year. 

How will he determine what is inefficient - he doesn't say. Maybe have a 800 billion dollar a year agency that can do that. 

- cut payments to private insurers 

So the insurers stop ensuring some procedures or better yet go bankrupt and let the government insurer take over.

- cut health deductions for the wealthy. 

The rich don't even use the government health facilities. He also assumes that they won't actually move somewhere else or cut on their work (why work when the government gauges you). 

- cut payments to hospitals for the uninsured 

That's when Orszag shows his real colors. He assumes there would be few uninsured if any, since the government will pay for them with taxpayers' money.

- improve medical records

It was tried in other places (Ontario), where the government spent over 500 million, no work was done, but those in charge got hefty bonuses. 

- changes in incentives (what changes - it's not clear).

Orszag's changes (and by extension, Obama's) don't even scratch the surface. It's like complaining that houses are too expensive when the interest rates are close to zero and sub-prime borrowers need no downpayment. The only solution then is to ask fannie and Freddie to lend more. 

The simple fact of dropping employer chosen health plan would be the best thing possible - for starters. 

What the healthcare system needs is a good dose of competition. Competition for insurers between state lines, a reduction in regulation regarding medical practice and a strong pressure on AMA (American Medical Association) to increase the number of medical students (or better yet, get rid of medical certification from AMA altogether). Also government discrimination against systems where the patients pay a fixed amount of money for care (while all costs are covered by the doctor/insurer). This in my opinion aligns perfectly the interests of the doctor (cut its cost) with the interests of the patient (good care). Tort insurance would also be useful (at least in capping the damages to a reasonable amount)

Milton Friedman wrote this great article in 1998. At the time he noticed that real costs of a day in hospital went from 30 dollars a day (in 1996 dollars) to 1200 in 1996. He also noted that the number of hospital beds per 1000 people went down as soon as the government programs of medicare and medicaid were implemented. The reduction in care produced a bureaucratization and an increase in number of nurses without any tangible benefit. Medical care professionals waste precious hours filling up papers for the government.

The share of government expenditure in healthcare is already 55%. Hardly a free market.

What incentives are there for providers of health services in a government system? None. As you might recall, in the US there was a scandal a few years back that soldiers coming from Iraq with serious wounds were "treated" in a dirty facility with rats (maintained by unionized workers of course). Also a family (I am sure it was not a singular case) was told that their loved one will never walk again, only to be treated in private facility and walk in a few months. 

Everybody can see the problems of the US health system. However, looking at Obama plan (or whatever crums he and Orszag revealed to the underlings), it's clear that their medicine is worse than the disease. 

It's seems to me that politicians enjoy using the machinery of the state to tax unwilling citizens only to redistribute the bounty with the other half (that is their voters). Sooner or later they will run out of other people's money. Then what?

Skidelsky is wrong to admire Keynes

Robert Skidelsky’s had this article published in FT, June 10 on page 9. 

In the article, he claims that Keynes, the intellectual behind big government intervention, is some kind of moral guru as well. 

The article really bothered me in being so utterly false. While I don’t know whether Mr. Skidelsky is trying to mislead his readers, or he is just misinformed. I personally think that he is misinformed, but it’s surprising to see someone who is a professor emeritus of Political economy have such skewed ideas on economics nonetheless. 

I will deconstruct and refute the main points of his article.

He claims that in economics there are no decisive battles. That is true, and the reason is because bad ideas keep coming back. 

Friedman in reason:

Quote:

Reason: I read an article recently in the Washington Monthly that repeated all the silly ideas about inflation that you've been fighting your whole career. Are battles like this ever won?

Friedman: No. All battles are perpetual. You go back in the literature of economics, and you'll find the same kind of silly statements 100 years ago, 200 years ago. And you'll find the same sensible statements the other way.

End quote.

Mr Skidelsky is definitely on the side of silly statements.

He claims that the proof that free markets are not self regulating came about as a result of the Great Depression. The fact is that the Great Depression got its scary name due to government hyper-intervention. Without government intervention, the depression would have been a deep, much shorter recession. The government introduced wage controls, decreased the amount of money in circulation and helped labor cartelize. Additional restriction to commerce between state lines were raised. Protectionist efforts were increased.

There is no doubt that bubbles will form on a free market. However, smart people will arbitrage other citizens’ herd behavior and keep the bubbles small. In order to have a massive bubble that can destroy tens of trillions of dollars worldwide, you need significant government intervention.

While Britain might be in better shape financially than US, it’s worth noting here that FDR’s reckless policies (Social Security) created the huge unfunded liabilities of the US government. Any institution operating on the free market with this ratio of liabilities to income would be bankrupt in no time. The only reason the US government is still solvent is because it has something no business has: the monopoly on taking money from citizens that live within its borders.

With respect to the policies that government pursued to produce “full employment” one must be really blind not to notice the perverse incentives the government provided some of its less fortunate citizens. High marginal taxes (partly due to quick withdrawal of cash incentives of being poor), are estimated to being over 100% in Canada for a certain income range (according to a National Post article). This is the poverty trap that keeps the poor poor and unwilling to work.
With respect to printing money or other fraudulent methods of “stimulating” demand, Milton Friedman proved decisively in the late ‘60s that an increase in the aggregate demand will only shift the real aggregate supply curve temporarily, while the price level increases to absorb the extra liquidity. An extra stimulus would be produced only by increasing the monetary mass at even increasingly faster rates. And so eventually a loaf of bread becomes a few billion dollars as in Zimbabwe.
Not only this, but other economists like Paul Ormerod showed that the Phillips curve is not a static relationship, but it is dynamic. Once inflation starts it goes spiraling up and you can have high inflation and unemployment at the same time. Remember the ‘70s?

The fact is that government intervention in monetary issues is very damaging. The fact is that temporary increases in liquidity can in principle keep the ball rolling. But as Milton Friedman said, there is nothing as permanent as a temporary government program. No government would dry the extra liquidity in time to starve inflation.
Additional problems appear when a structural deficit appears. Looking at the standard of living in France, one can observe that the standard of living decreased in the last 30 years because the disposable income decreased with increasing taxes. And these taxes appeared in order to create “temporary” programs to “jump start” the economy.

The reason why Keynes’ multiplier is less than one if not negative is very simple. In order for the government to provide funding for it’s so called expansionist programs (without printing money), it must tax the citizens. Now we all know that the government does not get a fixed proportion of its citizens’ income. No. It takes a higher proportion from those who know how to make money and a smaller proportion from those who don’t. The money is spent in uncompetitive ways by its workers and administered by bored underachieving bureaucracy.

For example, look at healthcare in the US. Since 1946 the cost per patient per bed in the US adjusted for inflation went up 40 times!!!! Milton Friedman blames most of it on Medicare and Medicaid.
Also looking at US government education, in the 1970s, US had some of the highest graduation rates and highest quality. In real terms, cost per pupil went up three times, while nobody in the world can consider the quality of US education world class. In terms of dollars spent only Switzerland spends more (but also achieves more). 

So according to Skidelsky taking money from those who make it, spending it badly on failed programs in order to get votes from the lower income citizens produce “growth”. Are you kidding me?

In another paragraph he discuses the financing of the deficit. First of all, financing any deficit would be very easy if there was no debt. However, the “temporary” programs become permanent. This way the current generation steals from their kids and grandkids.
But since we live in the “real word”, we know there is a lot of debt around. What is damaging about this is not only that this massive debt will diminish actual private investment. It also means that that future taxes will have to increase to pay for the future debt. This has a chilling effect on any hard working citizen. Future tax increases will make work even less desirable. 

In the last paragraphs of his article, Skidelsky states that the “Keynesian Revolution” was a triumph not of good science over bad science, but of good judgement over bad judgement. It seems to me that his article and his ideas are a joke to any thinking man (and despite his Nobel, I don’t think Krugman is a thinking man). The sad thing is that bad false ideas pioneered by some dead economist keep being perpetuated by individuals who don’t bother to look at the facts. And that has to stop. And the Keynesian Revolution must stop before the government bankrupts and enslaves us all.