Author Archives: jackheidel

The Challenges of American Health Care

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America is facing great challenges in healthcare. Our national health expenditure is $3.1 trillion per year, 17.4% of GDP, and is projected to reach 19.6% of GDP by 2024.   Some 34% of Americans are obese (BMI>30), far more than in any other country. Their medical expenses will soar in the years ahead.  Medicaid now covers over 70 million low-income people at a cost of $500 billion per year.  Medicare spends $615 billion per year on the 42 million Americans over age 65.
CaptureThe Hoover Institution’s Scott Atlas has just published “Restoring Quality Health Care: a six-point plan for comprehensive reform at lower cost.”  He claims that his plan will save $2.75 trillion over a decade for private healthcare and an additional $1.5 trillion per decade for federal healthcare programs such as Medicare, Medicaid and the Affordable Care Act.
The elements of his plan are to:

  • Expand Affordable Private Insurance by allowing all insurers to offer high deductible, limited-mandate catastrophic coverage (LMCC) to all citizens, which would be owned by individuals and portable.
  • Establish and Liberalize Universal Health Savings Accounts (HSA) for all citizens, individually owned and portable.
  • Instill Appropriate Incentives with Rational Tax Treatment of Health Spending equal for all, whether individual, self-employed or employer-based, requiring LMCCs for all.
  • Modernize Medicare for the 21st Century by establishing a private insurance option with defined-benefit premium support based on regional benchmarks featuring cash rebates to individual HSAs if premium is less than benchmark, otherwise additional cost paid by enrollee.
  • Overhaul Medicaid and Eliminate the Two-Tiered System for Poor Americans by permitting all insurers to offer LMCC plans to entire state population as well as setting up government seeded HSAs for all Medicaid enrollees.
  • Strategically Enhance the Supply of Medical Care While Ensuring Innovation by stimulating private retail clinics and loosening practice restraints on nurse practitioners and physician assistants.

 

A plan along these lines would go a long way towards both improving the quality and lowering the costs of American healthcare.

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Black Lives Matter II. The Ferguson Effect

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A recent post, “Black Lives Matter,” discusses the perhaps surprising fact, that the black-white life expectancy gap has been decreasing in recent years.  One aspect of this trend is that the death rate by homicide for blacks has been falling faster than it has been for whites. This may be about to change.
As recently reported by Heather MacDonald in the Wall Street Journal, “The Nationwide Crime Wave Is Building,” since Michael Brown was shot and killed by a policeman in Ferguson MO in August 2014, cops are disengaging from discretionary enforcement activity especially in big cities.
Capture4This “Ferguson Effect” is likely responsible for rising violence in urban areas.  For example:

  • Homicides increased 9% in the largest 63 cities in the first quarter of 2016.
  • These increases are on top of last year’s 17% rise in homicides in the 56 biggest U.S. cities, with heavily black cities showing murder spikes above 60%.
  • A study of gun violence in Baltimore showed an inverse correlation with proactive drug arrests. When Baltimore cops virtually stopped making drug arrests last year after the death of Freddie Gray while in police custody, shootings soared.
  • In Chicago, where pedestrian stops have fallen nearly 90%, homicides this year are up 60% compared with the same period last year.

As Ms. MacDonald notes, “If a powerful segment of society sends the message that proactive policing is bigoted, the cops will eventually do less of it. Ultimately, denial of the Ferguson effect is driven by a refusal to acknowledge the connection between proactive policing and public safety.”
Conclusion: If “Black Lives Matter” is going to be more than a slogan, it has to be tied in with sensible policies to reduce violent crime.  Demonizing law enforcement is exactly the wrong way to make things better.

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How Will America Solve Its Biggest Problems?

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As I repeat over and over again, our two biggest national problems, in my opinion, are slow economic growth (only 2.1% annual increases in GDP for the past seven years) and massive public debt (now 74% of GDP, the highest it has been since right after WWII).
Capture11Are these problems being addressed by our political system?

  • Our 2016 presidential race is clearly touching on them to some extent. The “Sandernistas” think that the Obama economic policies are not progressive enough and need to be doubled down on. Middle-income “Trumpsters” are revolting against the stagnant and falling wage growth of the past fifteen years.
  • The political scientist James Piereson thinks that the Democratic-welfare regime, in place since 1932, has now run its course and will necessarily be superseded by America’s Fourth Revolution which is imminent.
  • The social scientist Yuval Levin thinks that our “Fractured Republic” can heal itself peacefully if the left is willing to accept a less centralized, more federalist, governmental approach to solving economic and fiscal problems and the right is willing to accept that modern America is highly diverse and individualistic and where a significant degree of cultural fracturing, family breakdown and estrangement from tradition are inevitable.

My own opinion is that our huge and rapidly growing public debt (on which we pay interest) is unsustainable and will lead to another crisis much worse than the Great Recession of 2008-2009 unless it is curtailed. Without an adequate response in the meantime, the new crisis will occur when interest rates inevitably rise significantly and therefore lead to huge increases in interest payments on our larger and larger accumulated debt.
To avoid such a calamity we need to do a much better job of controlling federal spending.  It would also help to speed up economic growth in order to increase tax revenue.  Furthermore, faster growth would create more jobs and better paying jobs.  This would take much of the steam out of the appeal of populist candidates such as Bernie Sanders and Donald Trump.
I can’t foresee exactly how we will be forced to change course but it’s going to happen fairly soon.

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The Fractured Republic II. Where Do We Go From Here?

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I normally take what I consider to be a straightforward non-ideological approach to solving our country’s major problems. But in my last post, “The Fractured Republic,” I consider a larger framework constructed by the writer, Yuval Levin, who argues that both conservatives and progressives are stuck in nostalgia for a mid-twentieth century way of life to which it is impossible to return. As Mr. Levin points out, the last 100 years of American life have seen a consistent pattern of

  • Drawing together and then pulling apart. Three particular aspects of this phenomenon are pictured in the three charts below concerning immigration, political polarization and income inequality.
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    Capture16Capture15
  • Midcentury America straddling two broad trends: a consolidated society actively combatting some of its least attractive downsides like institutional racism, sexism, cultural conformity and a dearth of economic freedom.
  • A diffuse and still diffusing democracy. The problems we face today are the price of progress. In liberating many individuals from oppressive social constraints, we have unmoored them from their communities, work and faith. In accepting a profusion of options, we have unraveled the established institutions of an earlier era.
  • Hollowing out of the middle layers of American society has resulted from the diffusing and polarization of our national life. Solutions need to involve a recovery of these middle layers by means that are consistent with diffusion, diversity and decentralization.

These four conclusions about the current state of our society point towards an agenda for renewal:

  • The left will have to accept that the modern U.S. economy is decentralized, with diminished union power, higher income inequality, where cultural and economic pressures work against class mobility and large, centralized federal programs are a poor fit.
  • The right will have to accept that modern American society is highly diverse, individualistic, dynamic and deconsolidated where a significant degree of cultural fracturing, family breakdown and estrangement from tradition and religion is a fact of life.

Conclusion: Very succinctly, American social and economic progress in the future will require conservatives to accept ever expanding cultural pluralism (e.g. gay marriage and transgender rights) and progressives to accept a greater degree of economic freedom and decentralization.

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The Fractured Republic

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As readers of this blog will recognize, most of the time I write about what I consider to be America’s two major fiscal and economic problems at the present time: the slow growth of our economy (only 2.1% per year for the past seven years) and our massive and rapidly growing national debt (the public debt, on which we pay interest, is now 74% of GDP, highest since the end of WWII).
Every once in a while, I step back and take a broader view.  For example, last summer I reported on a new book by James Piereson, “Shattered Consensus: the Rise and Decline of America’s Postwar Political Order” which makes a strong case that only a new revolution, the fourth in our history, will suffice to turn our troubling fiscal and economic situation around.
Capture11Today I report on a book by Yuval Levin, of the Ethics and Public Policy Center, “The Fractured Republic,” which sees our current political paralysis as a result of nostalgia for the cohesive and unified America which emerged from the Great Depression and WWII.
Partisans on both sides of the political wars, both conservatives and progressives, want a reversal of some portion of the great changes in American life which have defined the postwar years, perhaps because American society has now achieved such a “perilous mix of over-centralization and hyper-individualism.”
“Progressives treasure the social liberation, cultural diversification, and expressive individualism of our time, but lament the economic dislocation and the rise of inequality and fragmentation. … Conservatives celebrate the economic liberalization, dynamism and prosperity, but lament the social instability, moral disorder, cultural breakdown and weakening of fundamental institutions and traditions.”
Mr. Levin sees a possible way out of our current conundrum which need not involve the revolution which Mr. Piereson foresees.  Basically he argues for a modernized politics of “subsidiarity,” a movement towards decentralization in our public affairs.
Stay tuned for more details!

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Why Is the U.S. Economy Growing So Slowly?

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The U.S. economy has only been growing at the rate of 2.1% since the end of the Great Recession in June 2009, almost seven years ago. Such a slow rate of growth means millions of unemployed and underemployed workers and only small salary raises for tens of millions of others.
Capture5The New York Times economic journalist, Eduardo Porter, observes that we have “A Growth Rate Weighted Down by Inaction.”  He points out that:

  • Our economy is adversely affected by the gradual shrinkage of the work force as a share of population as baby boomers retire and the one time surge of women into the workforce in the 20th century has ended.
  • A second factor is a persistent decline in productivity growth over the last dozen years.
  • A pessimistic forecast by the Economic Cycle Research Institute foresees growth of only 1% per year for the next five years. The Congressional Budget Office projects more optimistic productivity growth at 1.5% per year, which added to workforce growth of .5% per year, would amount to total growth of 2% per year for the next ten years.

Mr. Porter goes on to say that there are concrete reasons why productivity growth is so slow:

  • Hiring is growing faster than capital investment. This is because most job growth in the last decade has been in (low productivity) services instead of (high productivity) manufacturing.
  • Too many restrictions on educated immigrants. Relaxing these restrictions would increase entrepreneurship.
  • Too many onerous regulations.
  • Under training of skilled workers. We need more vocational and career education.

Many people, including myself, have pointed out ways to alleviate these problems and speed up economic growth, for example see here. It is most unfortunate that our dysfunctional national leadership cannot figure out how to work together to get this done.

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Real Financial Sector Reform

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My blog, It Does Not Add Up, addresses fiscal and economic issues facing the United States at the present time.  I am concerned about our slow economic growth which deprives many middle- and lower-income workers of their proper share of our nation’s increasing prosperity.  I am also concerned about our large and rapidly increasing national debt which will create a huge cost burden on society when interest rates resume their normal historical levels.
Capture11Another critical problem, left over from the Great Recession of 2008 – 2009, is how to properly reform our financial system to avoid another meltdown as occurred in 2007 – 2008.  To me this is a more complex issue than slow growth and huge debt and therefore harder to figure out what to do about it.  I am always looking for new sources of information on this topic and feel that I have just discovered a good one.  It is a new book, “Five Easy Theses”, by James Stone, the founder and CEO of the Plymouth Rock Insurance Group and former chairman of the U.S. Commodity Futures Trading Commission (1979 – 1983).
According to Mr. Stone the Dodd-Frank Act of 2010 is too weak in certain respects and three additional reforms are badly needed to avoid a new crisis:

  • The scale and risk profile of large banks should be reduced by having the Federal Reserve impose progressively steeper capital requirements as they grow larger.
  • Hedge funds should be regulated like mutual funds under the Investment Company Act of 1940.
  • The leverage of derivative markets should be reduced decisively with meaningful reserve requirements (which do not net opposite positions to zero).

Mr. Stone emphasizes that he is offering “best” solutions, not constrained by political reality. The financial sector’s share of GDP is now at an all-time high of about 8%.  The enormous wealth enjoyed by those at the pinnacle of finance will make them powerful opponents of meaningful reform.
But it always helps to know in what direction we need to go.

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Economic Freedom and Economic Growth

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I have written several posts recently, here and here, about America’s current very slow rate of economic growth.  In fact:

  • From 1970 – 2000 our economy grew on average at the rate of 3.5%.
  • Since 2000 it has grown at only half this rate, 1.76% annually.Capture4

The economics journalist, Gene Epstein, writing in Barron’s, “The Real Reason Behind Slowing U.S. Growth,” points out the very strong correlation between our rate of GDP growth and the Fraser Institute’s Index of Economic Freedom in the U.S. This index is based on ratings in the five categories:

  • Size of Government.
  • Legal System and Security of Property Rights.
  • Soundness of Money.
  • Freedom to Trade Internationally.
  • Regulation of Credit, Labor and Business.

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As shown in the chart above, the biggest reductions have occurred in the (2nd) Legal System, (4th) International Trade and (5th) Regulation areas.  Examples of freedom declines in the Legal System area are:

  • Judicial Independence: political interference in the bankruptcy proceedings of GM and Chrysler.
  • Impartial Courts: expanded use of Foreign Intelligence Surveillance Courts (FISA) where government requests are rubber stamped.
  • Property Rights: eminent domain made easier by the Supreme Court’s Kelo vs City of New London decision in 2005. The expanded use of civil asset forfeiture.
  • Military Interference in the Political Process: local police officers using excess military equipment.

According to the Fraser Institute, ”The effects of the Reagan and Thatcher political revolutions … led to increases in economic freedom and convergence among OECD nations. The so-called Washington Consensus of lower taxes, lower trade barriers, privatization and deregulation is quite evident in the data in the EF index.  The last decade has not been as kind to the cause of economic freedom.”
Such a huge correlation between the rise and decline of economic freedom and the concurrent rise and decline of economic growth is unlikely to be a coincidence.  Government policies strongly effect economic growth.  To ignore this self-evident truth is to invite economic decline.

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Thank God for the Republican House of Representatives

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It is now almost certain that Hillary Clinton will be the Democratic nominee for President and that Donald Trump will be the Republican nominee. The two biggest problems facing our country today are:

  • Slow economic growth, averaging just 2.1% since the end of the recession in June 2009, seven years ago. Even though unemployment is down to 5%, stagnant wages for the middle class have not nearly recovered from their pre-recession high.
  • Massive debt. The public debt (on which we pay interest) is now at 74% of GDP and rising. When interest rates go up, as they surely will eventually, debt payment will rise by hundreds of billions of dollars per year and be a huge drain on government revenues.

The likely Presidential nominees are not adequately addressing these problems:

  • Hillary Clinton wants to increase government spending by about $100 billion per year to be spent on various new programs and raise the top tax rate to 45% to pay for them. This will do nothing to either grow the economy faster or shrink our already sizable deficit.
  • Donald Trump has promised to keep entitlements as they are and spend more on infrastructure and defense. He also sees debt as useful. “I probably understand debt better than anybody” he has stated. His tax plan (which he says is negotiable) will create massive new debt.

If Clinton is elected, she may pull the Senate Democratic along with her. But either way the House of Representatives will likely remain Republican with Speaker Paul Ryan.
Capture3Since the Republicans took over the House in 2010, they have consistently proposed budgets each year to shrink the deficit and produced a balanced budget within ten years.  The new President, either Clinton or Trump, will have to negotiate their own ideas on spending and taxes with a fiscally conservative House.
The country is indeed very fortunate for this circumstance.

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Black Lives Matter

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I describe myself as a fiscal conservative with a social conscience. Most of the time I discuss issues like slow economic growth and excessive national debt.  But occasionally, like today, I deal with related issues such as social inequality.
Capture11Last fall I had a post entitled, “Why Racism Exists in America” in which I made the case that it’s not just our different skin color which divides blacks and whites, but also the large degree of social inequality between the two races, such as disparities in family structure and education levels as well as for income levels.
Capture10Today I am pleased to refer to an article in yesterday’s New York Times, “Black Americans See Gains in Life Expectancy.”  In fact, the black-white life expectancy gap has dropped from 7 years in 1990 to 3.4 years today.  This is for a multitude of reasons:

  • The suicide rate for black men has declined from 1999 to 2014, the only racial group to show such a drop.
  • Births to black teenage mothers, who tend to have higher infant mortality rates, have dropped by 64% since 1995, faster than for whites.
  • The rate of deaths by homicide for blacks decreased by 40% from 1995 to 2013, compared with a 28% drop for whites.
  • The death rate from cancer fell by 29% for blacks over the same period, compared with 20% for whites.
  • Smoking has declined faster for blacks than whites and, in fact, blacks now have lower smoking rates than whites.
  • The decline in black deaths from AIDS accounts for a fifth of the narrowing of the mortality gap with whites from 1995 to 2013.

One way that black lives matter is that blacks are living longer! This offers hope that blacks can and will make progress on other fronts as well.

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