The Now Renamed "Health Insurace Reform"

I could basically post multiple things a day about this topic, but it would beat us down and probably interfere with what I want this blog to become. So I'm imposing voluntary self-restraint until such time as news events absolutely compel me to bring it up. On the other hand, it is a hugely important topic and one that will impact our country's economy for a long time to come. So feel free to comment on your own or ask me to comment on specific issues or topics.

Are We in a Recession?

One of the educational experiences of my life that has had a lasting and profound effect on my life, philosophical development, and intellectual growth is my law school experience at The University of Chicago Law School. Not only did I get to find out what is was like to live as a Yankee, I was exposed to some amazing and powerful intellects, both among my fellow students and among the faculty. One of my law professors my first year was Richard Posner, who is the intellectual godfather of what is known as the law and economics movement, an effort to analyze legal rules and principles through the lens of economics. During my time at UC Law, he was appointed to the 7th Circuit Court of Appeals, where he still serves while continuing to teach and write prodigiously. One of his outlets is a blog he co-authors with Gary Becker, a Nobel Prize-winning economist at UC. A fascinating thing about their blog is that it is a dialog between them over current topics of interest.

Most recently, Judge Posner posted that while he believes the nomenclature is not important, he feels the current economic situation is severe enough to be considered a depression, not merely a recession. In his view, we are not out of the depression/recession until GDP returns to the long-run trend line (the secular trend line from our economics class) and this may take 2 or 3 more years before we get there. Pointing out what I have said previously about our economic theories' inadequacies, Posner writes:

A number of macroeconomists and financial economists, including leading figures in these important branches of economics, had believed until last September that there could never be another depression, that asset bubbles are a myth, that a recession can be more or less effortlessly averted by the Fed's reducing the federal funds rate, that the international banking industry was robust, and that our huge national debt was nothing to worry about, nor our very low personal savings rate. All these beliefs have turned out to be mistaken, along with influential versions of the rational expectations hypothesis, the efficient-markets theory, and real business cycle theory.

That said he does not fault the government for taking actions inasmuch as we are in uncharted lands where our theories don't fit the facts. But in a sobering conclusion, he writes:

The economy remains imperiled. If the Administration's trillion-dollar health care program is enacted in anything like its proposed form, the costs, on top of the rapidly rising public debt that is the consequence both of the impact of the depression on tax revenues and the costs of the anti-depression programs may create an aftershock to the current depression that will do almost as much harm to the nation as the--I insist on the term--depression itself.

In response though, Professor Becker writes:

The latest output and unemployment figures for the United States indicate that the recession in this country is very probably finally over, given the usual definitions of the turning points of recessions. . . . I am more optimistic about the world and US recovery than the consensus, although I do not expect a sharp expansion during the next few months. . . . So legitimate reasons exist for concern about the speed and strength of the recovery of the American economy. However, I worry much more about various regulations, spending, and controls being introduced by the present Congress and by President Obama than by intrinsic difficulties in the American economy.

Confused? I think this illustrates well how very confusing the current economy is and how difficult it is to chart a course of action when no one is certain what's going on. But the Becker-Posner blog shows how it is possible to have a civil and high-level discourse on the subject.

Change Nothing? - John Stossel's Take on Health Care Reform

Change Nothing? - John Stossel's Take

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You Have to Laugh

Or cry. Senator Boxer can tell the protests at town hall meetings aren't sincere because the protesters are too well dressed. The video is at Hot Air.

I'll remember to dress like one of my students if I go to a meeting. I guess for sure this means no bow tie.

Health Care - Reopening a Can of Worms

I'm back, and I think I'm ready to stir things up a bit. So let's talk health care (since Congress is wisely slowing the runaway train of reform down a bit).

It's commonplace to hear how the American health care system is unfair and in need of reform. If you listen to the politicians and major media, you come away convinced that our system is so deeply flawed that we need massive changes, and there is a sense that only government can be trusted to fix it.

From a simplistic economic standpoint, I tend to believe strongly in the efficiency of a free market system, with government involvement only to set fair playing rules for competitors in the market and to deal with what are known as externalities or market failures - situations where for one reason or another the market does not work correctly or efficiently. One of those market failure situations that we all inherently understand is a monopoly - where a single seller controls a market. We instinctively sense that the imbalance of market power causes problems - inefficiency, reduced output, higher prices, "supernormal profits", etc. I'm not sure why we don't have the same instinctive distrust of what is known as a monopsony - a market characterized by a single buyer. The economic arguments for inefficiency are simply the mirror image of a monopoly, yet there is a hue and cry for a monopsony in health care: the "single payer option" with the government as the single payer. In addition to the libertarian distrust of government that I have, I have a further economic problem with such an inefficient solution to a problem that I truly believe is overstated.

Why do I say it is overstated? Consider the following article: http://www.ncpa.org/pub/ba649

I strongly recommend that you read and consider the points being made there before you declare our system irretrievably broken. Some of you have questioned my sources at times - I think the sourcing and documentation of this report are impressive. Don't assume all conservative viewpoints are flawed and incorrect. Read and think for yourselves.

What's the problem with our system? In my opinion the flaws are explainable by my free-market economic approach: for a market to work, consumers and producers must be free to communicate with each other through the market and price mechanism. They aren't, because distortions created by wage controls many years ago and continued by tax laws have led to a system dominated by the insurance companies. In other words, the producer (hospitals, pharmaceutical companies, doctors, etc.) do not deal directly with consumers (patients) because the bulk of payment now is made by the insurance companies. So we have separated the payer from the consumer, a situation which almost always distorts market incentives and responses.

Rather that create a single payer system, we should instead focus on the economic source of the problems, the break created by the insurance companies' dominant role. As for people who are unable to afford or receive adequate healthcare, there are other, less intrusive, less expensive ways to see that they share the benefits identified in the article I linked to above. Let's not throw the baby out with the bath water.