Thursday, November 21, 2013

Money Illusion

Here, Philipp Bagus offers a crystal clear explanation of how the Fed and other central banks around the world are systematically misleading millions of people to believe that all is well.  All is not well.

By monetizing federal debt (so-called "Quantitative Easing" to the tune of $85 billion per month), the Fed is "papering over" past attempts to borrow something that had not yet been produced and saved (albeit with digital paper instead of real pictures of dead U.S. presidents).

Regular readers of EconoBlast need no reminder of the impossibility of borrowing something that has not actually been produced and saved.  New comers to EconoBlast can read all about it here.

 What does the future hold for Americans who are members of the Baby Boomer generation?  Will the financial claims many of us hold (stocks, bonds, savings accounts, and just plain money) have real purchasing power over the next two or three decades when we Baby Boomers expect to spend those claims on real goods and services?

Sadly, much of the financial wealth we Baby Boomers take ourselves to hold could turn out to be an illusion.  Just as Philipp Bagus reminds us in the article linked above, we cannot consume our financial wealth.  We can consume only real goods and services.

Will our economy produce the real goods and services we Baby Boomers financial claims are supposed to allow us to purchase?  The Fed is doing just about all it can get away with to make that possibility vanishingly small.  Please read the Bagus article linked above.  He's already explained it clearly, so I won't bother repeating his words.

Against all odds, I remain optimistic that our economy will produce the real goods and services necessary to honor the financial claims of Baby Boomers.  I remain optimistic in spite of the misguided policies of the Fed and our federal politicians.

I believe that technology will save us from ourselves, just as it has always done in the past.  Give the audio file you will find here a listen.  Put simply, advancing technology will almost certainly make America's $17 trillion federal debt irrelevant!  That distinct possibility is no excuse for the self-serving actions of the Fed and federal politicians, but it is nice to know.

In the nearby future, the combination of artificial intelligence, nano technology, and technologies not yet heard of will mitigate the scarcity of real goods and services so dramatically that most people living on planet Earth will enjoy a very high standard of living --- without working.

Some people think that not having to work will destroy society.  Other people (like me) do not think so.  Not having to work to keep body and soul together will be wonderful, not a scourge.  Am I just a fool with a dream?  You decide.  Listen to the audio file linked above before you decide. 

Thursday, November 14, 2013

King BHO?

Hot off the Wall Street Journal

White House to Allow Cancelled Health Plans to Continue, Official Says
The White House will allow insurers to continue plans that have been cancelled, a Democratic official said.

The proposal may dissuade Democrats from backing House GOP legislation slated for a Friday vote. President Obama is scheduled to deliver remarks on the health law at 11:35 a.m.

Here's a question.  I thought the Patient Protection and Affordable Care Act (roll over George Orwell) was an act of Congress.  Since when in America is the President empowered to make up ad hoc provisions of a law at will?

Friday, November 1, 2013

Mendacity Means Lying

Here, Charles Krauthammer pretty much tells it like it is.  ObamaCare (a.k.a. the wildly misnamed Patient Protection and Affordable Care Act) will not work.  Nearly everyone, except BHO and his throng, have been telling us why for a long time now.

Now that the really bad stuff about Obama Care is kicking in, EconoBlast predicts that it will not be long before the House and the Senate set about making necessary amendments to the empowering legislation for ObamaCare.  Who knows, BHO might even sign an amended law, if the lay of the land under the current legislation starts exploding in his mendacious face.

Nearly everyone understands that our health care system "as is" isn't free-market capitalism.  Nearly everyone understands and agrees that reforms are highly desirable --- nearly everyone except the healthcare insurance industry, the pharmaceutical industry, and the hospital industry, that is.  These three big, rich, and politically powerful industries all stand to wax fat under ObamaCare.  So don't be surprised when these three big, rich, and powerful lobbies resist amending the PPAACA.

Alternatives for reforming our health care system have always been around.  EconoBlast archives offer several (here, here, here, and here).  When the House and the Senate do get around to amending the PPAACA, which they definitely will, with or without BHO in office, here are some principles that could and should guide their work (but likely will not, given the vested interests and political power of the three big, rich, and powerful lobbies).
  1. Health care insurance should be privately purchased by individuals in a nation-wide market of competing companies.  State borders should be absolutely irrelevant.  Think automobile and homeowners insurance.  We should be seeing commercials on TV about how to save 15% on our health care insurance,  just like we see for autos and homes!
  2. Health care insurance should be  INSURANCE, not pre-paid health care packages.  Insurance protects consumers from high-cost, low-probability events (e.g., events like wanting a heart transplant, treating stage-4 cancers, treating survivors of horrible traffic accidents, and the like).  We do not purchase insurance for changing the oil in our cars, cleaning the exterior of our homes, and the like.  We all expect those expenses to come around,  and we expect to pay for them out of pocket.  We should all expect to pay for routine, ordinary, entirely common health care out of our pockets, too.  After all, we pay for our food that way, unless we qualify for food stamps.  Why should health care be different?
  3. Health care insurance should have nothing to do with where people work.  Individuals could and should purchase health care insurance in a national, competitive market that offers a variety of insurance plans that are suitable for each individual household. 

    Sixty-year old people will no doubt choose a policy that does not cover pregnancy.  People with an unusually high risk of breast cancer will no doubt choose a policy that covers treatment for breast cancer.  Insurance plans simply must carry risk-based premiums.  Anyone who understands the insurance principle and actuarial principles knows that anything else is not and cannot be INSURANCE.

    What about people with preexisting conditions, you say?  Preexisting conditions are a special case, and not a particularly large problem, by the way.  If Americans want to subsidize health care for people who have preexisting conditions, that's fine.  Congress can vote means-tested provisions to do so, if We the People want to elect members of Congress to do that.  But preexisting conditions is certainly no reason to embrace the insanity called ObamaCare.

    What about people who can't afford health care insurance, you say?  If Americans want to subsidize health care for people who "can't afford health care insurance", that's fine, too.  Congress can vote means-tested provisions to do so, if We the People want to elect members of Congress to do that.  After all, most of us do want to help people who truly need our help.  But again, people who cannot afford health care insurance is not a particularly large problem.  And again, that problem is certainly no reason to embrace the insanity called ObamaCare.
  4. We could and should be presented with a price list each and every time we want health care.  When is the last time you looked at the menu of prices in your docs office?  Yea, right.  People who don't have to face a price don't really care what the price is.  We don't buy anything else that we consume without wanting to know the price.  Why is health care supposed to be different?  Can't answer that question?  Neither can I.
  5. The supply side of health care simply must become much more competitive.  Not many people know about or talk about the supply-side restrictions our current health care system has built in. 

    Thousands of well-qualified students, graduates with a BS in an appropriate field, who want to go to medical school should not be turned away each and every year for lack of seats in medical schools, as they are today. 

    Yes, medical doctors are usually very smart people.  But so are people who earn a doctorate in tens of other fields like finance, accounting, engineering, and history.  Seats for training in these tens of other fields are not strictly regulated by Congress.  You get the picture, right?

    People with medical training that does not rise to the level of MD should not be prohibited from administering health care that they are well qualified to provide.  Nurses and nurse practitioners can and should be able to provide health care for many ailments and conditions they are currently barred by law from providing.  Pharmacists could and should be allowed to sell us medications and drugs that they certainly know the purpose and safe use for.  Truth be known, most MDs don't have much knowledge about drugs.  They get what they know from pharmaceutical sales reps.  Well trained pharmacists actually understand the information.

    It's fine for MDs to be certified.  Certification is a good practice.  We all like Consumer Reports, right?  Angie's List is a great idea.  But requiring licensing to practice medicine is just a barrier to entry that gives docs market power to limit competition.  Why should practicing medicine be different from practicing accounting?  CPAs are certified.  We go to a CPA when we think it's in our best interest to do so.  We go to a bookkeeper when we think a bookkeeper is all we need.

    If you want to know why health care is so bloody expensive, look to just two really, really important reasons:   (1) supply-side restrictions, and (2) health care expenses paid for Joe by Sally, with no prior knowledge of what the price will be.
  6. Medications, drugs, and medical technology could and should cost just what it costs to manufacture and market them.  Monopolies on pharmaceuticals and medical technology should be banned.

    What about research, you say?  Let's pay for basic research in pharmaceuticals through our taxes.  Let's let our universities compete for dollars to support such research in competitive bidding through the National Institutes of Health.  Most people don't know that academics in research universities are already the driving force behind advances in health care drugs and technology.  Let's get it out in the open explicitly and sharply reduce the price of drugs.

    People who argue that we won't get advances in health care and drugs without patents just don't understand people very well.  The softwares Open Office and Moodle, both open-source software, are two great examples of people creating and maintaining advanced technology simply because they want to; it's what they do.  No patent necessary.  The same is true for medical research and innovation.  It's just what some people do, and they will do it regardless of patents that raise the price of drugs and health care technology.

    Research has shown that being first to market is important for making money with innovations.  Patents just raise the price to consumers and enrich the patent holder.  Is that really what we want in health care?

Additional details could be offered for Congress to consider to amend the PPAACA.  But the suggestions I offer above would get us a really long way down the road toward  meaningful and important health care reform.  ObamaCare will not.  Each day that passes will make that truth ever-more obvious. 

Go ahead.  Write your member of Congress.  But don't be too surprised when all you get back is a form letter from your member's staff that says your member of Congress thanks you and will certainly take your suggestions into consideration.  Don't be too surprised when none of the sensible suggestions offered above don't find their way into the sure-to-be-amended PPAACA.