Monday, September 19, 2011

Careless Policy

It seems pretty clear by now that, of all the reasons for the stubborn refusal of the U.S. economy to recover strongly, one of the biggest ones is the unintended consequences of a major health care bill that hasn't even gone into effect yet for the most part.

I do not question the good intentions of the people who wrote and passed the legislation, commonly called Obamacare. But the fact is that, while the administration is obliged to do its best to defend it, this was never going to be a widely loved government creation. Conservatives hated it for a number of reasons: because it represented the kind of big government program they have long railed against and, in the end, because they were frustrated over their powerless to stop it. But the left isn't exactly enamoured of it either because it fell so far short of what they had wanted and hoped for when Democrats swept into power three years ago. Many of them, including President Obama himself, said openly that they preferred a single-payer system or, barring that, the inclusion of a "government option." What everyone got was a complicated monstrosity that resulted out of what was possible politically.

Indeed, you could go so far as to say that Obamacare was designed to fail. Republicans certainly wanted it to fail, for all kinds of ideological and partisan reasons. But liberals certainly cannot be disappointed to see it fail as well, but only to the extent that its failure might force a crisis that results in it being replaced with what they consider to be a better system, i.e. single-payer. The problem for them is, if the health care law has to be scrapped, will the country move forward to more government involvement or roll back to the old free-market insurance system? Given the current mood of the country, you would have to bet on the latter. But realistically, the likely outcome would be to repeal some of the provisions that the Republicans find most onerous and leave the rest intact. Even Republicans, the professional politicians among them anyway, tend to be loath to give up government control on things, once it has been established.

It is worth remembering that, before the passage of Obamacare, polls showed that people generally were not that unhappy with the quality of their health care. Their main complaint was the cost of it. The other general concern was the number of people without coverage. Obamacare was designed to deal with almost every problem but the one people cared about most: cost. In fact, if you deliberately tried to come up with legislation that would cause healthcare costs to rise, you couldn't do much better than Obamacare, which put more distance between the consumer and the provider--a sure recipe for raising costs. My brother, who is a partner in a company in Nevada, told me that their healthcare costs immediately jumped 30 percent on the passage of Obamacare.

If the government came to me and asked me to design an optimal healthcare system, I'm not sure what I would suggest. A truly unfettered free market will result in the lowest costs but it will leave victims among those who fall through the cracks or become unlikely victim of abuses. A completely government-run system would theoretically take in everyone but would certainly be inefficient and expensive. You may ask, who cares if it is expensive if the government is paying for it? But an expensive system eventually becomes a low-quality system. The optimal system would be one that is mostly free-market but attempts to police potential provider and drug company abuses and also subsidizes care for society's neediest--but only the neediest. Medical savings accounts are an idea that gets bruited about from time to time, and it's a good one, especially when supplemented with catastrophic insurance--which is a lot cheaper than insurance that tries to cover everything. It leaves medical choices in the hands of patients and encourages efficiency because healthcare providers must to compete directly for choices made by patients.

In the end, however, getting from the current mess to a reasonable, workable system will not be easy.

Friday, September 16, 2011

Blind Faith

My cynical side strongly suspects that many American politicians regularly profess blind faith in things they do not, in their heart of hearts, really believe.

For example, I have a sneaking suspicion that there are politicians who, deep in their souls, are agnostics if not atheists but who go to church and pay lip service to religion because it is an electoral requirement to do so. Similarly, I think there are politicos who do not really believe that anything the government can do will have a serious effect on the planet's climate but who claim otherwise for political expediency.

But, in my suspicious mind, the most common article faith proclaimed by those who do not really believe it has to be the notion that the government can do anything much, if at all, to affect the economy. As far as I can see, most politicians behave as if they do not really believe that anything the government does, or does not do, has much of an effect on the economy. For those who subscribe to this view, the politician's job is basically to position himself to take credit when the economy does well and to blame others when it doesn't--and then hope for the best. Or, if politicians actually do believe that the laws and the budgets and regulations that they pass do make a difference, then they are even more cynical than I think. That means they see their main job to put off the economy's most dire problems until things fall apart on someone else's watch--after they themselves are out of office.

How else to explain the way both major political parties pay lip service to the looming failures of major programs like Medicare and Social Security but then continue to carry on business as usual and legislate with only the short term in view? A "super committee" is supposed to sort out the deficit later this year, but is there any reason to believe that its recommendations, if it can arrive at any, will be heeded any more than the last panel that was formed to deal with the problem--and was subsequently ignored?

The current deficit crisis isn't something that began only with the brinkmanship that nearly resulted in the U.S. going into default over the summer. Successive governments run by both parties have been wilfully ignoring the trajectory of federal spending for some time now.

The country's so-called leaders have gotten away with this game for a good while, but Barack Obama may be the unlucky one to have the house of cards fall down on his watch. Recessions and recoveries generally follow consistent patterns, and one of those patterns has been that the steeper the downturn, the steeper the upturn. But it hasn't happened that way this time. After a couple of years, there is almost no discernible recovery at all. Something is different this time. For one thing, the federal deficit in terms of GDP is much larger than practically ever before. For another, businesses have seen their health care costs spike up in the wake of the passage of a major bill that was supposed to rein in health care costs. And, since the law doesn't fully come into effect for a few more years, the true cost of hiring new employees is not clear for those employers who might normally be looking to expand. Money that could be spent on reducing the unemployment rate is sitting on the sidelines because of the self-inflicted wound of government-initiated long-term uncertainty. Another one-time burst of government spending, such as President Obama has proposed, won't fix that.

Did the Democrats who drafted the health care bill consider the real-world implications of what they were doing? Or did they believe that the U.S. economy would carry on (as it usually does) in spite anything they might do. If they are getting a shock that the laws they pass actually do affect the economy, think of the shock they will get when it turns out that years of spending more than the government takes in results in harsh, unavoidable austerity, in the form of steep spending cuts and/or oppressive tax rates, or rampant inflation or, in the worst case, both.

In that case, the politicians will surely follow the course that politicians usually do. They will do their best to put the blame somewhere else.