Social Medicine

France and England and the former Soviet suite of countries have state owned, financed and operated health care systems.. They are the definition of socialized medicine.

What this means is that the government has an infinite ability to fund the hospital (they can print money - except maybe in the EU) if they deem health care to be more important than say national defense.  It also means they can mandate any change they need - breaking unions, organize educational programs to employ future sectors of the health industry that they feel will be lacking qualified employees in the medium to long run.  It's in their financial interest to provide such incentives as they are liable for the health industry if there are cost overruns or scarcity of resources.

However, the dark side is that innefficiencies can fester.  The government is often powerless to fix a known problem because it is the very definition of 'too big to fail'.  And potentially undermotivated employees (see DMV for reference) may not have any incentive to step-it-up to call out bad co-workers, or take time out of their overworked schedule to help a co-worker accomplish a task or more ideally [re]-train them.

A corporation on the other hand starts off with ultra-motivated founders.. Their money and their livelihood is at stake.. They often take pride in their work, and natural selection matches motivated people with heads-of-companies. (Lazy people don't go out and risk their cheeto money on a new company, and motivated people aren't happy doing routine work every day).  Thus even in large companies, divisions are run buy such motivated people (except when nepotism creeps in - son of the founder gets a cushy VP job).  But on the hole, there are at least some divisions with high motivation for efficiency, productivity and or profitability.

The natural selection weeds out the less capable companies (including dis-economies of scale as they are able to compete with leaner firms).  I say 'are able', because many companies become big and fat becase they've found a way to cheat the system.. Have a law passed that gives them exclusive monopoly rights (incluing the evil that is Patent and copy-right.. But this is a war for another day).

Thus for most industries, a competative 'not too big to fail' company is going to be more effective and be able to facilitate more customers/clients than an equivalent government industry.

However, one element of corporate efficiency is that it gives the customer everything they demand, and almost nothing more.. You may THINK you want a car with a nav system. . But really, why spend $2,500 on a car feature, when you can buy something from bestbuy for $90 that's more up-to-date.  Now, a wealthy person doesn't want the 'hassle' of a non-integrated nav-system, and money is no object (at least not in the $30k range).  Thus car companies have efficienctly isolated wealthy people from poorer people in their pricing.  Similarly with other goods and services.. 'Coupons' often require time and effort of the customer, and thus a wealthier person can't be bothered to save $1.50.  And possibly not even $50.

Health care is no different.  Ignoring the fact that we have a graduated pay system from HMO to PPO to retained doctors.  A given insurance company or medical professional's price-sheet is geared to provide what the customer needs efficiently, so long as that customer is representative of every other customer within a demographic.  And if this was all we had to deal with, the US health-care system would be marvelous.

The problem lies in the special cases.  If you are too poor, the hospital still services you, but needs to recoup the costs - spreading them across all normal paying customers.   But even there it doesn't spread out evenly..  It's spread out by statistical correlation with your ability to pay, or the risk that you might not pay... Thus, a person with no insurance, cold off the street, is considered high risk.  Furhter, they are not contractually bound by an HMO/PPO price-sheet, so they can be charged whatever is desired.  Further, to date, this is such a small percentage of the population (people that are not risks of non-payment but do not have insurance) that they are not a true market that can negotiate it's price (by shopping around from hospital to hospital).

Another special case is actually the most publicized.  Getting sick.  If you get sick in an expensive way, your insureers job is to get out of paying for it (statistically on average this saves them a substantial fraction of money - even when taking in to account law suites).  The most common pattern is 'prior conditions', which is a silly premise.. Another is simply having a bad health care plan that may only cover $20k / year, or worse, life-time.

The problem is that becase people so rarely get sick, or are unable to consider their situation of being sick in the future - that they are unwilling to spend an extra $50 / month today to acquire a better plan for tomorrow.. I say $50 as a reference point.  On any given day, there is a $300/month difference between good coverage and bad coverage.. But that's because most people naievely choose the cheaper coverage, leaving the better contracts to the low-volume and thereby necessarily high-priced category.  Thus, those with good 'jobs' get the high priced packages (where the employer hides the cost), and those with easily-replaceable jobs get the cheapest possible plans.. So the rich push for more expensive and poor scrounge for the cheapest possible, widening the gap.  If, instead people understood that the cheapest plans were practically useless and that they would have a life-threatening ailment one day, they would force themselves to save up the extra $50 for a slightly better plan.. And as everyone would do so, then a better contract COULD exist.  Meaning more pricey coverage, but with higher volume, meaning the margin CAN be smaller yet still profitable (consider that CPUs cost $10 billion to design, yet have a dollar margin once they've hit their stride.. imagine a drug maker charging only a dollar more than it costs to make it - it's possible, but only with sufficient scale).

Then there's drugs.  Unlike doctor services which have high but fixed overhead - and thus distributing the cost equitably with high enough volume eventually brings the costs down dramatically .. Drugs are more like CPUs.  High R&D costs, but practically pennies to produce.  BUT, also like CPUs, some types have very rare uses - so their costs will never see high volume.. Sadly, drug companies push to release the rare-use drugs into the open market for unrelated remidies.  This is like selling you a tractor to commute to work.  It might actually get the job done at the end of the day, but it probably wasn't the best available tool, and probably not even the best price.

Even if you use government subsides for R&D, you just wind up paying for it in taxes.. 1 cent  / day  to cure foot fungus might not sound like much, but it would likely be more expensive than what a private industry would spend to come up with the same solution.

So we have the two extremes.  Full government run health, and naturally discriminating free-market.

But lets take another look.  I normally don't participate in health-insurance, but my company recently gave me some numbers and I was shocked.   The PPO plan was roughly $10,000 / year for a family plan.  If you consider that there are still some single-income families out there, this is crazy.  25% of an average US  income to health insurance.  Again, you could choose the cheaper HMO (still several thousand), but re-enter the quality-of-care divergence.  Now 1 cent for foot cream is one thing, but 25% suggests something is wrong.  With all the efficiency, you should be at least getting basic care + catastrophic insurance without so much intrusion on your way of life.

It is genreally known that insurance companies are profitable.. That their premiums rise based on investment instrument profitability, NOT cost of health-services and NOT with law-suites.. Namely studies have not shown any correlation except for bond and other investment instrument price fluxuations.  Namely, if bonds are doing well, then insurers are cash safe (they can treat bond investments as if it was in their checking accounts, cashing out any day they like).. If bonds are doing poorly, then insureers would rather 'ride the storm', knowning that tomorrow is a better day to sell.. But they still have cash obligations.. So to meet them, they raise premiums.  Incidentally, bonds and other 'safe' instruments are where they park the premiums until they're needed (0.5% checking accounts would not be prudent).  Note that they COULD lower the premiums when market times are good again, but if you have a captive audience, and every insureer runs by the same game-plan, there's no incentive to do so.  Of course, this turns into profit, which quickly is given back out to stock holders.. So any 'extra's are lost during boom times, and the cycle starts all over again.

Likewise, a profitable insurer is willing and able to pay high rates to hospitals (not because htey want to of course, but because the insurer has to insure SOMETHING).  So hospitals love their PPOs and maybe even a few HMOs as they're cash cows.  It allows them to set the base-line price for a procedure.  Namely the doctor plans out their average cost for the year based on previous years, and if they were heavily HMO or PPO, then they know how much of a raise to give everyone, how much new equipment to buy and amortize over 10 years.  Good years set spending practices that are difficult to change for many years to come.. And thus over time, the profitable insurance company feeds into doctors offices, hospitals, and of course drugs.

Because people are unaware of hte actual costs of the actions their taking, there is a loss of market efficiency - namely natural information passing from buyer to seller.  Here we go through an intermediary who has no interest in an individual transaction's efficiency.  Maybe you needed that laser eye-scanner, or maybe a simple flashlight would have been sufficient.. Nobody knows, because people aren't shopping around for doctors (especially w/ an HMO) like they do so dilligently for shoes or a car.  You are already in a form of socialism when you use insurance company intermediaries for health.  And especially so when your employer chooses the insureer (being the cheapest possible, or the 'best we can afford').  So really, we have 2 layers of separation for the market efficiencies to be applied.

So my first comment is that we do NOT have a free market health care system.  So all this complainig about not choosing my doctor only identifies you as the top 10% (PPO and beyond). It shows how ignorant you can be of the majority who can't choose their own doctor (not that choosing would do any good, given the remaining informatoin vacume issues).  Secondly, as I've shown above, we are NOT in a market-based system.  We are in a meta-market system, where actors are blindly making decisions. And that over time, the decisions have become bad and multiple choice - and only A through E.

Canada has something half way between socialism and capitalism.. Kind of like us, but it was engineered instead of allowed to fester.

Canada uses public insurance, but private practice.  They don't charge for individual operations, so there is information loss (the government may innappropriately negotiate away a misunderstood drug or operation).  But since everybody is forced to pay their 1 cent / day for foot-cream, they fully fund the normal operations.  revenue is predictable so doctors can properly plan future expenses / salaries.  Catastrophic is covered, no pre-condition issues. No cost offsetting.  But most importantly, no profit steering.  The only potential for profit here is the doctors, but they are competing with one another to fullfill the same services for a lesser average price - instead of the other way around like in the current US system.

There is still that 25% cost.. It's there in canada, just like in the US.. Some $10k / year for someone earning $40k.  It's not one-to-one in Canada.  It's part of their general tax, and it's only 10 to 50% of that for any given year.  So you might think - boy that's 25% MORE taxes they have to pay.. suckers.. I don't want to be paying 40% tax.

Well, I hate to break it to you.. You already do.  It's just that the government is really good at hiding things from people that are statistically REALLY bad at math.  They don't realize that 7+ 1.5 + 8 + 2.5 + 5 + 7.5 + 25 is actually a really really big number.

First, the government has the concept of the AGI.  Adjusted Gross Income.. This is a base-line number that's used to take all their trickery into a comparable point.

If you are self employed, you'd understand.  Namely a self employed person leaves no place for the government to HIDE taxes.. They pay for EVERYTHING up front..  You may think that having your employer pay taxes is 'sticking it to the man', but then you'd just be proving your ignorance.. If your employer has $100k / year available to pay out in salaries.. Then if the government adds a new tax, but only does so on the 'above the line' employer tax, then they necessarily have to reduce your salaries, benifits to make up for that loss.. While they usually can't just cut your salary, they certainly will try and not hire someone new for as much (people are usually hired below a target salary, then give them raises as they prove themselves - exception being prevoiusly experienced people - which is really just like moving into an identical house in a different neighborhood).

Taxes you pay:

Social Security and Medicare: 50% employer, 50% employee.. But when you're self employed, the number is warped because your 'base salary' is higher, so this warping is accounted for in above-the-line AGI.

Unemployement: employer

Federal,State taxes: employee

When you add it all up, and if you don't have sufficient deductions (e.g. you don't own a house), then your total tax will be up and around 44%.

You can reduce this by 10% if you own a big enough house to get your deductions from the 25% tax bracket to the 15% tax bracket.  Due to the graduated scale, every penny you deduct reduces your overall effective tax-rate.

This point of this is to compare apples to apples.. In Canada, you have government negotiated private care, with government taxes.  You have very low premiums and or hospital costs.  Your total tax is rougly 40%.

You have the same tax in the US, but THEN, you have to pay upwards of 25% in ADDITIONAL insurance premiums.  Thus roughly 60% of your true income is diverted towards defense, bridges and health-care.  Compared to the 'poorer' Canadian country.

If you're healthy, you can game the system and save that 25%, and really, this is what people call 'the american dream'.. Gambling and winning.. Course, you can have 1 million players and a single winner, but the casino gets that one photo, and they're assured the next year's worth of addicts.

Obama Taxes

I don't get this argument I keep hearing. Repeating something over and over doesn't make it more true.

I hear things like this over and over:

"I'm not sure that those that voted for Obama would agree with a dictatorship. How can a President "ask" that a CEO of a major company step down? And If that CEO did not step down, then what? Would he tighten the screws on GM and the CEO? 

What about all the spending? And for what? What are we getting for this? Just more debt for our kids."

Which I think sums up the opposition argument.

A) Obama is not a dictatorship - he's at the mercy of congress and the judiciary. He can not make international treaties w/o congress. He can't spend money w/o congress. He can't go to war, enact/ignore a law.. And, if you haven't noticed controlling the Democratic congress is like hurding cats.. Only the repulblicans have mastered the 'block vote' concept.

B) There is no legal enforcement that Obama has over non-banks (yet). We do have SOME regulatory power over banks - but certainly not willy-nilly. However, when one potential investor says to a prospective investee, I'll not grant you money unless I think it's a prudent investment - then certainly he can have an effect on the operatoins of the business. This happens every day around the world. It's what controls what you see on TV, what you eat, etc. 

C) The corporate/bank "spending" is mostly lending/investing - and depending on how the companies survive the melt-down, we'll get most of the money back. Yes, most of the stock is non-voting, and has dropped precipitously, but stocks do that, it's only a paper loss until sold.

D) The 'stimulus' package is the closest detractors have to a real argument. However, their argument is usually poorly crafted. If a state doesn't repair a bridge and it kills 500 people - how cheap do you think that's going to be? It's the state's responsibility to pay for these types of repairs (including schools doing as well as Waltereed), but few states can afford any additional capital expenditures. Thus there is a humanitarian element to this portion of the spending. Unfortunately repairing a road doesn't have as good a return on investment as building a new one (you're not increasing the efficiency of local businesses). The 'stimulus' employs a single set of people, and doesn't amplify sufficiently to recoup the money. Renueable Energy R&D also likely isn't going to be a cash cow.. In fact, it's likely to drain resources - throwing good money after bad. Consider cold fusion, or pretty much anything to do with space exploration. Yes, there are residual advances - but paleing in comparison to the costs. The point is that you're not making financially sound investments.

However, there is another, more important, dimension to the stimulous package. It is effectively printing money. The federal reserve, by maintaining a near-zero interest rate does so by writing checks to bankers for US treatures (now also mortgage backed securities). These checks create money out of thin-air. Banks keep an account with the federal reserve, and thus they never cash the checks - they merely have their accounts credited. Thus there is no actual physical printing of money going on - though banks have the right and do request physical cash transfers as needed - these do result in printing. But a substantial fraction of this has to do with retiring old/damaged bills.

The treasury issues bonds on the open market. The Fed purchases on the same market (though not necessarily directly from the Treasury). When inflation is in check (as happens in an inflation - though not in 'stagflation' - poor Bush I), the fed can freely purchase billions of dollars worth of bonds (offsetting the treasuries expenses). Thus the Fed effectively 'transfers' not-yet-printed money to the treasury.

So long as the resession endures (e.g. no inflation), the fed can fully fund the treasury and NO taxes will increase.. PERIOD.

Now, when inflation does eventually kick in, then the fed is required to stop buying US treasuries, and in fact, start selling them back (taking money out of the economy) This happened just before the y2k bubble. Unfortunately it's difficult to guage the right time to change directions, and many say Greenspan took way too long. BUT, if done correctly, the inflation should happen alongside the economic recovery - which means larger tax collection revenues and thus a lesser need to issue new US treasures (aside from the usual reissuing recently expired treasuries).

So IF the excess spending is truely temporary, and IF the loans are repaid in short order, and IF the Fed correctly manages the money floating in the system to prevent over inflation, or inflation in key sectors attached to their market (like the housing market - tied to those same banks getting all this money during the Bush Era), then we can 'level off' gracefully.. The fed raises rates back to a sustainable level - starts pulling that extra cash back out of the economy, and tax revenues catchup to the [now reduced] spending levels.

There are certainly a lot of things that can go wrong.. But it is ignorant at best and immoral at worst to claim that 'Obama is sacrificing our kids futures' - phrased as if he was knowingly doing this - or worse, that it's not neglegance on Obama's part, but maliciousness- that he's somehow against your children.

Even though several things can go wrong, here is what I consider the worst case to be. Inflation. NOT higher taxes.. The laffer curve says that there is some maximally efficient tax-rate whereby the government would lose money if they lowered OR raised taxes. Namely if you raised taxes, you hurt the economy and thus can't collect as much from the reduced corporate profits. If you charged less, then you're at such a low level that corporations can't further profit from the reduction. Consider that we charge different industries and demographics at different rates - thus there is a maximally efficient point for every section of the economy - and the government obviously is trying to hit that sweet spot in each region (though nobody can know for certain what it is, since it's a moving target). Thus, even if we were overly indebted, it would be STUPID to raise taxes beyond this maximal point. You only collect LESS money in taxes by raising the taxes too hight.... So how do you know it's too high? Ask the oil company. Namely you experiment, from year to year, tweaking the value, and trying to rule out as many variables as possible.

The point is you will NEVER see 90% tax rates again (check your history to understand just how good Americans have it these days).

Finally, on inflation. We have had 2.5% 'core inflation' for ages. But we've had 102% spending for that same time. low-inflation values lenders and cash-holders, but suffers debtors. Property owners are indifferent. As most Americans have $10k of credit card debt, and are now $25k to $500k underwater on their home mortgage, inflation benifits the average american. Why? The min-wage has not moved very quickly over the past 15 years (this has been a huge reason for the lack of inflation - in my lay opinion). Once this rate goes up, we're going to see inflation (regardless of the Fed's monetary policy). Min-wage is considered poverty-line in most of the country. Raising it is not exactly immoral (for the mores of capitalism). Growing it by 25% means that basic household goods can grow in price by 19 to 26% (video games, movie tickets, fashionable clothing would certainly grow faster than milk for example). The growth in price is natural because more people can afford them. This increases base good profitability (though their constituent costs are also rising). Some industries are hurt by the inflation (government wages and procurement certainly is hurt). Basically things average out for most people...

EXCEPT debt. While the operating costs of the government might grow 10%, the tax revenues increase by at least 10% and thus the ability to pay down national debt (along with personal mortgage debt and credit card debt) is stronger (not 10% stronger because costs went up by 10%). But consider having $1 million in debt when you earn $100K / year. That's a lot.. Consider that $1M when you make $1 billion / year. It's almost a rounding error. The point being, as inflation slowly creaps over time, the existing debt becomes less and less of a burdon. Now, what's important is that this does not include NEW debt. Obviously your newly issued bonds need to be 11% or higher with 10% inflation. So you're worse off borrowing in this period. So if you are not careful, you can certainly be in a much worse situation..

But my point is that inflation CAN be a net positive for the country, if managed correctly.