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?

Jeffrey Sachs is WRONG if not ill-intended

A few days ago, Jeffrey Sachs, a well known economist wrote some quite nasty things about another fellow economist, Dambisa Moyo. Ms. Moyo, replied back to Mr Sachs accusations. 

As a rule of thumb, a white guy heavily criticizing a black woman would produce a flurry of accusations of racism. This of course if the guy is a conservative/libertarian and the woman/minority is a socialist (i.e. liberal in the N. American sense). Financial Times tried this Saturday to present a “balanced” view, but somehow failed. To quote from FT:

“It has been easy for critics to poke holes in both her analysis and her solutions. The book does not establish in any scientific way the link between hundreds of billions of dollars poured into Africa over decades and the poor performance of economies. It also studiously ignores evidence of development assistance working.” 

FT also quoted Jeffrey Sachs as saying that her ideas are “absolutely pernicious, and could lead to the death of millions of people”. 

It appears that Jeffrey Sachs is a desperate man. The first rule of science to present arguments and not come with ad-hominem attacks. However after years and years dealing with the UN and other bureaucracies, it seems that Mr Sachs lost his scientific mantle and got a politician’s. 

In a nutshell, Sachs arguments are as follows:

1) Dombisa Moyo and Bill Easterly got aid in school and this kind of aid should also be available to others. 

2) Moyo and Easterly are pure evil and want to pull the ladder of opportunity of poor people. 

3) Children in Africa and dying, but Goldman Sachs paid more bonuses last year than US help to Africa, while at the same time GS got help from the government. 

Paul Kagame, the President of Rwanda is hypocritical for getting foreign aid while at the same time being against it. 

Moyo and Easterly produce the misconception that aid doesn’t work, when in fact it mostly does. 

Help from the western aid decreases child mortality which in turn decreases the number of kids.

Countries need more money in aid to graduate into a more wealthy environment. 

Jeffrey Sachs employed the worse kind of logical fallacies against a fellow economist. I am personally outraged. Now the rebuttal:

Moyo and Easterly got help with their studies, that is probably true. What is also true is that both of them graduated and made their mark in the world and now pay taxes so other students get “student aid”.

Without the “student aid”, some effects would be felt: Firstly taxes would be lower (since they won’t cover for student “aid”). Then academics would be making less money (since their customers would be more careful if they had to pay 100% of their tuition. Also, a private system of lending to worthy students would appear. Akerlof  would argue that this way, due to asymmetric information, the number of loans for students would be less than now, since investors would find it hard to find worthy students that will eventually pay back their loans. This is true only if we assume that the cost of education stays constant as a percentage of the student’s post graduation after tax income. 

Evidence however shows the opposite: with the exception of medical schools that don’t turn out enough graduates (due to AMA enrollment restrictions), most schools have more graduates than required. In order to have most of them complete their education, universities are incentivized to water down their subjects and go at a slower pace. True achievers need to spend more time in school and get more advanced degrees in order to differentiate themselves from those who go to universities in order to get drunk and get laid and get a piece of paper on the wall. Also, because the government’s heavy involvement in higher education, many courses taught are completely useless if not dangerous: courses in sociology, marxism, post-modernism etc.

Also, due to the increased number of graduates, the employers find it harder to find the people that they need, and also due to the lemon problem, those overachievers will be paid less than they would if only the truth seekers got advanced degrees. Add to this increasing taxes to pay for those who were supposed to have more applied metier. My point is that Easterly and Moyo, having already proven themselves, I can guarantee you that they would have made it if they had to pay for their tuition themselves. For every dollar they got in “aid” they probably pay 3-4 dollars if not more in taxes so that slackers get degrees and under-achieving academics stay employed.

In a talk with Cato institute some while back, Easterly mentioned that once he realized that aid didn’t work, and some innovative solutions must be implemented, he was sacked by his employer. And why is that? Because the mandarins working for the World Bank not only get above market salaries and perks, but also most likely get  kickbacks from the loans they provide.

Paul Wolfowitz also tried to reform this failing institution and was shown the door. It is also worth knowing that a large portion of the World Bank loans are provided to China (30% in 2005) and other countries that don’t really need WB’s help.

I don’t see how these courageous people who aren’t happy with the status quo and pay for their idealism are somehow evil. A careful observer might actually speculate that Jeffrey Sachs is in this position. 

It is true, children are dying in Africa and maybe to the tune of 9 million a year. If this is true, then perhaps 9 million died last year, two years ago and so on. The point is to make sure that this number decreases fast and goes close to zero as soon as possible. Moyo is right in her assertion that billions were spent years ago and the problem is still there. Look at SE Asia. Fifty years ago Ethiopia and South Korea were at a similar level of development. Now the GDP per capita in South Korea is ten times higher than Ethiopia’s, while over the years Ethiopia benefited from hundreds of billions of dollars in aid. Also the problems that Sachs mentioned in Africa can be supplied by locals themselves at lower prices. What is needed is respect for private property in these countries. But why would government bureaucrats want economic growth when that would mean that aid from the West would dwindle as a consequence. Why not throw thorns in the way of progress and keep the population subservient, while the aid comes and is directed to their pockets. This is what Sachs fails to understand or more likely fails to mention in order to keep the status quo and his position of “development guru”.

However what western governments did in Africa was to provide some “free” food, thereby killing the local agriculture and industry. Also they (especially europeans) banned some agricultural products by claiming it’s genetically modified and dangerous to health. On top of that large amounts of aid was stolen by corrupt government officials in their home countries. People with integrity have no room in these corrupt governments.

Goldman Sachs provided some bonuses last year, but not as much as the aid to Africa. Also I don’t see how relevant it is what Goldman Sachs does. Moyo was not the CEO of Goldman Sachs, but just a bond trader. While GS got a small help from the government in a 5 bln TARP loan (that GS would repay tomorrow if the government would take its money back), without government intervention, GS which currently has about 164 bln of liquid instruments could buy Citigroup, Bank of America and/or other assets. Sachs’ attack on GS is disingenuous at best.

Moyo, in her defense mentioned that given the current situation in the world economies, President Kagame could have asked for more aid and blame it on the world situation. He did not. Sachs’ attack is like blaming the fat kid who lost some weight by working out and exercising for still being fat. Again very disingenuous if not mean.


5-7) Aid doesn’t work indeed. I would like Sachs to provide some examples of the contrary. If aid actually worked, Africa would have been so rich, while SE Asia should have still been a poor backward region. If aid worked, we would be talking about some “aid tiger”. Actually the countries that grew faster are those who got the least amount of aid. 


It seems highly suspect to me that a bright Ph.D. can’t see that the data does not support his hypothesis. Not only aid doesn’t work, but it becomes increasingly apparent that dirigiste economic policies in the west are bringing us closer and closer to poverty. Will Sachs live to advocate aid to the West from the now developing economies?