Don’t Let Pessimism Overwhelm Idealism

“On what principle is it, that when we see nothing but improvement behind us, are we to expect nothing but deterioration before us?”
Thomas Babington Macauley, 1800 – 1859

In addition to my primary sources for this blog,  the New York Times and the Wall Street Journal, I also read a fair number of new books, often reviewed by these two newspapers.  I have just finished reading “Suicide of the West: how the rebirth of populism, nationalism and identity politics is destroying American democracy,” by Jonah Goldberg.

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Mr. Goldberg’s main premises are:

  • We are living in an unnaturally prosperous time. Our prosperity is not merely material but political and philosophical.  We live in a miraculous time, by historical standards, where every human born is recognized by law and culture as a sovereign individual with inalienable rights.  This is not normal in humanity’s natural environment.
  • We stumbled into this miracle without intending to and we can stumble out of it.
  • Human nature not only exists but it is fundamentally unchanging.
  • If we do not account for, and channel human nature, it will overpower and corrupt the institutions that make prosperity possible.

Mr. Goldberg carefully documents the amazing human progress which has taken place since the eighteenth century, as have several other authors, see here, here, and here.

Here is how I evaluate Mr. Goldberg’s argument:

  • First of all, I agree with his description of our country’s many shortcomings: ingratitude for the miracle, history of slavery, the vast administrative state, the perniciousness of occupational licensing, bonfires of asininity at elite universities, the rising tide of protectionism, the family’s losing war against barbarism, Trumpian populism, government’s increasing centralization, etc., etc., etc.
  • But he is too hung up on the politics of the moment, and the failures of government. The “miracle” developed out of the fundamental economic principle of specialization and exchange and will be able to withstand less intrinsic human and societal imperfections.
  • There is a deep yearning for freedom and democracy around the world, see here  and here.  America doesn’t have to be perfect to serve as a beacon to others.  We just have to avoid being complacent.

Summary.  Jonah Goldberg’s “Suicide of the West” should be read and digested by everyone who values the American way of life and wants America to continue to prosper and lead the world into an even brighter future.

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The Future of Democracy Is Bright

The fall of the Berlin Wall and the collapse of the Soviet Union in 1989 were high points for democracy world-wide. In 1992 Francis Fukuyama even proclaimed “The End of History.”

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But in the meantime China has grown much stronger and a declining Russia is stirring up trouble by throwing its weight around.  It is very important for the U.S. to stand up to threats from these and other autocratic regimes around the world.  In doing so we have many strengths.

Some experts say that nevertheless democracy is in decline.  But consider:

  • Hong Kong has been in heavy revolt for many weeks.  It was promised many freedoms by China for 50 years when it separated from Great Britain in 1997.  The whole world is watching closely and China will suffer great international damage if it cracks down on Hong Kong with military force.
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  • As many as 60,000 Moscow residents have been demonstrating for several weeks against the Russian government’s attempt to dictate who can or can’t be a candidate for municipal office.  Many Russian people clearly want a truer form of democracy than they have at the present time.
  • The power of autocratic Premier Recep Erdogan was successfully challenged by the new mayor of Istanbul, Ekrem Imamoglu.  This could push Mr. Erdogan to implement political and economic reforms in this crucial NATO member.
  • Premiers Hugo Chavez and Nicolas Maduro have destroyed the Venezuelan economy with their corrupt socialistic policies and millions of residents have fled to nearby countries.  The U.S. is attempting to force democratic change by putting sanctions on the international sale of Venezuelan oil.

Summary.  The development and widespread implementation of democracy around the world since the end of WWII is a hugely positive sign of human progress.  This deep human longing for freedom continues to manifest itself.  No country, no matter how autocratic or corrupt, is immune from its force.  This bodes very well for the future of free society.

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Donald Trump’s Biggest Failing: it’s Debt, not Racism

President Donald Trump is accused of many things: lying, willful ignorance, exaggerated feelings of self-importance, mean-spiritedness, childishness, using racially divisive language, white supremacy, etc.  He has such a domineering personality that it is easy to make these charges in a credible manner.

Policy-wise the situation is different.  He is doing some things quite well.  For example:

  • Economic growth has been robust with a currently low unemployment rate of 3.7%.
  • He is cracking down hard on China for unfair trading practices and theft of intellectual property.
  • He has imposed stiff economic sanctions on international bad actors such as North Korea, Iran, Russia and Venezuela.

His biggest failing, in my opinion, is ignoring rapidly growing spending deficits which are adding so dramatically to our exploding national debt.  The problem is that:

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  • After falling for several years, deficits are now increasing again. The deficit for the current 2019 fiscal year will be close to $1 trillion and growing.
  • Right now interest rates are so low that our debt is almost “free money.” But interest rates will inevitably rise at some point and then interest payments on the debt will explode and make our annual deficits that much worse.
  • When the next recession hits, which could be soon, tax revenues will fall and social spending will increase, making the deficits that much worse.

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  • Deficit and debt make a very difficult political problem because fixing it requires cutting spending and/or raising taxes, neither of which is a politically popular option. This means that it will be difficult to solve this problem until a severe fiscal debt crisis occurs which will require unpleasant emergency action.  But it is a President’s responsibility to address our most serious problems.

Summary.  President Trump has many critics who accuse him of various faults and deficiencies.  But his biggest failing, which will have the most negative effect on his legacy, is his unwillingness to address our country’s most severe long term problem: out-of-control deficit spending and rapidly accumulating debt.

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Why Medicare Finances are Such a Big Driver of the National Debt

As the readers of this blog well know, I am highly concerned about our country’s rapidly growing and out-of-control national debt.  Furthermore I have pointed out many times that the main driver of our debt is the excessive cost of healthcare, both public and private (Medicare, Medicaid and the tax exemption for employer provided health insurance).

In a recent post I showed that the high costs of American healthcare are due to high prices for healthcare products and services (hospitals, doctors and drugs), the complexity of the U.S. health insurance system and the rapid growth of healthcare administrative staff.

In my last post I proposed first of all, to use the Medicare price structure to set a cap on the price of all medical services and secondly, to figure out how to better fund Medicare itself.

Today I present an analysis of Medicare finances based on a recent report by the Kaiser Family Foundation.  Consider:

  • Medicare Part A is financed primarily from a 2.9% payroll tax. Medicare recipients only pay about 25% of the costs of Parts B (providers) and D (drugs) through monthly premiums, deductibles and copays.  Overall, 41% of Medicare expenses are paid by the federal government (see first chart).Capture45
  • In 2017, net federal spending for Medicare ($591 billion) represented 15% of the federal budget (see second chart).Capture43
  • The Congressional Budget Office projects net Medicare spending to increase to $1.3 trillion in 2028 or 17.9% of the federal budget (see third chart). It will increase from 2.9% of GDP to 4.2% of GDP over this same time period.Capture44
  • This rapidly growing federal share of Medicare costs is not being adequately paid for and is therefore adding dramatically to federal deficit spending. Options are to raise the payroll tax for individuals, shift Medicare from a defined benefit structure to a premium support system or increase federal tax rates.

Summary.  Medicare is an efficiently run healthcare system but is currently underfinanced by over one-half trillion dollars per year and growing.  This is a major contributor to our rapidly growing national debt and will cause a huge new fiscal crisis if not addressed.

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Controlling the Very High Cost of American Healthcare

Our country’s biggest problem is the rapidly growing national debt.  Furthermore our debt problem is primarily driven by the increasing cost of entitlements and more specifically by healthcare spending.

In a recent post I examined some of the reasons why our healthcare spending is so out of control.  Question: what are we going to do about it?

I have reluctantly come to the conclusion that only strong measures will enable us to control healthcare costs and thereby rescue our country from our currently out-of-control debt problem.  In my opinion there are two major steps which will enable us to accomplish this:

  • Medicare prices for all. Note I did not say “Medicare for all”.  We do not need an overall single payer system.  I am proposing that a cap be placed on the price of all medical services, including for hospitals, providers (e.g. doctors) and drugs, along the  lines of what Medicare pays for these services.  In particular Medicare should be authorized by Congress to negotiate drug prices with pharmaceutical companies.  This does not eliminate the free market, but it does constrain it.  All medical service providers will be forced to operate much more efficiently than they do now.  Huge innovation will occur and the most creative providers will thrive.  A system such as this will drive down the price of healthcare considerably and thereby make private healthcare insurance much more affordable to individuals and families.
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  • A more complete financing system for Medicare. In 2017, the net cost of Medicare to the federal government was $591 billion.  This huge dollar amount is growing rapidly and is the main driver of our increasing national debt.  Medicare recipients (I am one myself) pay (through their payroll taxes, monthly premiums, deductibles and copays) about 60% of the total cost of Medicare expenses.  The rest is paid for by the federal government.  We have two options to correct this imbalance.  One way is through a means-adjusted premium support system whereby Medicare recipients pay a greater share of Medicare expenses.  The other way is through a substantial federal tax hike which will necessarily hit the middle class as well as the rich.

Summary.  American healthcare is way too expensive, both for individuals and families and for the federal government which subsidizes it.  It would be far better to solve this problem in a rational, sensible and deliberate manner than to postpone any significant action until a huge fiscal debt crisis occurs and forces an emergency response.

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Do Not Repeal ObamaCare’s Cadillac Tax

My last post examines some of the reasons why American healthcare is so much more expensive than it should be.  We can’t possibly solve the U.S. debt problem without getting the excessive cost of healthcare under control.

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One of the drivers of these enormous costs is the tax exemption for employer provided healthcare.  This uncapped tax benefit for health insurance premiums is very costly.  It drags down wages and pushes up healthcare spending by contributing to the third-party payment problem.  That is, consumers tend not to care how much things cost when someone else is paying for them.

ObamaCare’s Cadillac Tax, a 40% excise tax on high cost employer sponsored health insurance, was supposed to take effect in 2018 but has already been delayed until 2022.  It would raise $197 in revenue from 2022 – 2029.  But the true purpose of the Cadillac Tax is to address the tax code’s preference for lavish plans since premiums aren’t subject to federal income or payroll taxes.

Unfortunately the House of Representatives has now voted, by a margin of 419 – 6, to repeal the Cadillac Tax entirely.  This bill now goes to the Senate.

Instead of repealing the Cadillac Tax, Congress could exempt both employer and employee HSA (Health Savings Accounts) contributions from the calculation of the value of the plan for the purpose of enforcing the Cadillac Tax.  Exempting these contributions would give employers an incentive to offer their employees HSA-qualified plans and fund their accounts.  This would erode the third party payment problem and nudge more Americans to consume healthcare the way they consume other services.

Summary.  Healthcare costs are increasing much too rapidly and must be slowed down.  Encouraging the formation of Health Savings Accounts is one way to accomplish this urgent task through private initiative.  If the free market is unable to control the cost of healthcare, then a single payer government-run healthcare system in the U.S. is almost inevitable.

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Examining the High Cost of American Healthcare

As I have stated many times on this blog, our country’s biggest problem is the rapidly growing and out of control national debt.  Furthermore our debt problem is driven primarily by the increasing cost of entitlements, and more specifically by healthcare spending.

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In other words, we need to understand why healthcare spending, both public and private, is growing so fast and figure out an effective way to control these costs.  A good source of information about healthcare costs is a new book by the economist, Uwe Reinhardt, “Priced Out: the economic and ethical costs of American healthcare”

Here is some of the pertinent information provided by Mr. Reinhardt:

  • U.S. health spending per capita in 2017 amounted to an estimated average of $10,209 – twice as much as is spent per capita in most of the rest of developed countries.
  • Although Americans actually consume fewer healthcare services than do Europeans, for example, prices for virtually any healthcare product or service in the U.S. tend to be at least twice as high as for comparable products or services in other countries. (As an example, see chart for a comparison of childbirth costs)

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  • Most nations have relatively simple health insurance systems. By comparison, the U.S. health insurance system is highly complex.  The typical American physician spends $80,000 per year interacting with health insurers, nearly four times as much as is spent by physicians in other developed countries.
  • From 1990 to 2012, the number of workers in the U.S. health system grew by nearly 75%. Nearly 95% of this growth was in non-doctor workers.  Today, for every doctor, only 6 of the 16 non-doctor workers have clinical roles such as nurses and care coordinators.  The other 10 are purely administrative staff.
  • Total spending on healthcare provided by employment-based health insurance is growing at an average annual rate of 8% (see chart for growth of healthcare costs for a family of four), four times faster than the rate of increase of inflation.

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Summary.  High prices for healthcare products and services (hospitals, doctors and drugs), the complexity of the U.S. health insurance system, the rapid growth of healthcare administrative staff: these are the major reasons for the high cost of healthcare in the U.S.  How are we going to get these costs under control?  Stay tuned!

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