Saturday, September 5, 2009

Many Questions, Few Answers

Many Questions, Few Answers

There are many reasons why support for President Obama's health care plan has declined as the details have become clearer. I suspect that Mr. Obama and his advisors were afraid this would happen. That's probably why they wanted to rush it through Congress (even though most of its provisions don't become effective until 2013).

Their central dilemma is this -- voters want more than vague outlines of what Obamacare will mean to them. Unfortunately for reform proponents, however, whenever there is talk about specifics a firestorm of controversy and partisan division erupts. In other words, the proponents can't be vague and they can't be specific.

In his campaign for the presidency Mr. Obama did an excellent job of selling himself, but he has failed to truly sell anything else. It's becoming clear he is not a good salesman, teacher, or persuader. He has attempted to sell what's unbelievable. That's not good salesmanship. If I were one of his supporters I would be extremely frustrated with him. The recurrent problem with selling Obamacare is that there are far too many aspects that, to put it mildly, strain credulity.

The so-called "public option" is a prime example of why everyone ought to be extremely skeptical of Obamacare. In a Labor Day speech the president said "I continue to believe that a public option will improve quality and bring down cost." On an almost daily basis, however, the public option has been an on-again-off-again proposition. This might cause a person to wonder, is it important or isn't it? In his speech to the joint session of Congress Mr. Obama said that the public option is simply "a means to an end."

Although none of the specifics of Obamacare are clearly defined, the idea behind the public option is that it would supposedly be a way to add a new kind of competitive pressure to private health insurance companies. The public option would be a new government-run, government-owned health insurance company.

I've been studying economics for almost 50 years. I have never before heard of anything vaguely resembling the case being made for the public option. I would be interested to see an example of a government-run, government-owned institution that puts competitive pressure on private companies, causing them to provide lower prices and better service. Is it the existence of the U.S. Postal Service that causes UPS and FedEx to keep costs low and service high? Where are the examples of government institutions being run more efficiently than private companies? The experience most people have is just the opposite.

There are already well over a thousand health insurance companies in existence. It would be hard to argue that our health insurance problems stem from a lack of competition. In some states there are only a handful of available companies. That's primarily the result of burdensome regulations, mandates and limits on interstate competition. Economists have called competition the "patron saint of consumers." More competition is definitely a good idea, but attempting to make the government a competitor is a weird way to accomplish that objective.

I have no idea where this totally novel idea came from or why anyone thinks it would work. It's an idea I had never even heard of until a few months ago. Nevertheless, it has become a make-or-break issue for many Obamacare proponents. The proponents need to explain exactly how it would work and why it is of such paramount importance.

Would this new government-run health insurance agency be self-supporting? If it had access to public funds, how could private companies compete with it? It would not be a level playing field. The president has told us repeatedly that if we're satisfied with our current health insurance, we can keep it. If a subsidized public option drives most private insurers out of business, however, that option will go away. The main reason there are so few private schools is that they have to compete with public schools that provide a similar product free of charge.

The public option is a totally untested shot-in-the-dark. It is perhaps the best indicator that Obamacare proponents are willing to overhaul one-sixth of the economy on little more than a wing and a prayer. At this point the public option could be described as a "faith-based" proposal.

Mr. Obama and other Democrats have said many times that their preferred version of health care reform is the so-called "single payer" system similar to what Canada, Britain and France now have. They recognize that, at this point, however, a single-payer system is a political impossibility. It's that reality that is the real impetus behind the public option.

Whenever the public option itself begins to look like a political dead end, they run some other half-baked idea up the flagpole. "May I offer you single payer? Not interested? Would you buy a public option? No? Would you buy a health insurance co-op? Not that either? Could I interest you in a public option trigger? No? Surely, then, you could agree to an insurance exchange." They're beginning to look silly, desperate and floundering -- more like a Saturday Night Live skit than someone wanting to redesign a sixth of the economy. Do we really want a comedy team in charge of our health care?

Another example of the too-good-to-be-true nature of Obamacare is Mr. Obama's promise that it will reduce the overall cost of health care and will not add to our already massive deficit. There are obvious reasons why much of the public is not buying that claim.

We're told repeatedly that there are 47 million Americans without medical insurance and because of that they are receiving inadequate medical care. (In his speech to the joint session of Congress Mr. Obama put the number at 30 million uninsured Americans.) The dilemma is you can't improve the medical care for 47 million (or even 30 million) people without spending large amounts of money.

As much as they might like to, politicians cannot repeal the laws of supply and demand. If demand is increased significantly, there will be upward pressure on prices. Lawmakers can attempt to cap prices if they want, but that will only lead to shortages. Improving the health care for millions of new people will require a significant increase in the number of health care professionals. How is that going to be accomplished? How is going to be paid for?

Mr. Obama has also assured us that his plan will not lead to rationing. That is another impossible promise. In one form or another, every economic good has to be rationed. There is no good or service that can be available to everyone in unlimited quantities. The rationing device we rely on in most cases is the price system. Flexible prices balance supply and demand. If you choose not to rely on the price system some other rationing mechanism has to be put in its place.

Remaking the health care sector is probably the biggest domestic issue ever undertaken by the government. Something that massive and historic should only be attempted after careful analysis as well as deliberate, serious, and open debate. Mr. Obama has not had discussions with Republican lawmakers since April. He has taken a "my way or the highway" attitude. Rather than take alternative proposals seriously and respectfully, he has demeaned and ridiculed anyone who's not on board with his own particular prescription for reform.

One undeniable aspect of government solutions to problems is that the "cures" are extremely inflexible. Technology, our culture and the economy are all changing at an accelerating pace. Even if an answer is right today, it isn't necessarily right tomorrow. Politically imposed rules and bureaucracies all suffer from chronic rigidity. Government imposed regulations necessarily take on a "one size fits all" character. Bureaucracies treat people not as individuals but rather as categories. Is that really the direction we want to go with health care?

Consider, for example, how the federal government attempted to deal with agricultural problems in the early years of the Depression. Their "solutions" were based on what we now realize was a complete misreading of the underlying problems. Nevertheless, their ill-advised programs are still with us more than 75 years later. There have been numerous attempts by presidents from both parties to end or modify such programs as agricultural price supports, all to no avail.

Creating a whole new set of rules that will significantly change one-sixth of our economy is an undertaking far more difficult than the advocates of health care reform seem to grasp. Neither Mr. Obama nor the congressmen involved are experts on the health care industry.

Politicians have a fatal urge to oversimplify reality. Problems and shortcomings of our health care system are exceedingly complex with an endless list of origins. Politicians arrogantly assume that in a relatively short period of time they can design solutions that will make the whole system function more efficiently. Whatever "solutions" they impose on a complex system will make some problems better and some problems worse. More often than not, politically imposed "solutions" create far more problems than they eliminate.


Thhis article originally ran in the North Coast Journal, September 17, 2009 - Ron Ross Ph.D. is an investment advisor at Premier Financial Group in Eureka and author of The Unbeatable Market.

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