currency is rising ever so slowly against the dollar. But is that hurting
China? We will look at a very interesting chart and some research. And then
we’ll gain some more insight into why the employment numbers seemed to
surprise. I guess if you lower the bar, it’s easier to jump over. I also deal
with the pushback from last week’s Outside the Box! And Ireland is on my
radar. There is a lot to cover, so let’s jump in.
start this week’s letter on a flight from Cleveland (where I was at the
Cleveland Clinic meeting with my good friend and doctor Mike Roizen (of Oprah
and the various “YOU” books with Mehmet Oz) on some non-health-related
business, and we talked last night about the state of health care. Mike keeps
pointing out that much of our health-care cost comes from chronic diseases that
are either directly or partially lifestyle choices. And he is right. The data
shows it. Smoking, overeating, lack of exercise – all contribute to our health-care
bills. And health care was on my mind.
a little mea culpa. I get letters from readers who start their missive out with
something like, “I know you probably won’t read this, but…” Well, I can’t say I
read every letter, but someone does and I get and read as many as I can. And my
rule is that I get all the negative ones, and any letters that show particular
thoughtfulness and give me suggested reading or just good suggestions. I do pay
attention to you. It takes some time, I admit, but I think it is important.
the feedback I got on last week’s Outside the Box on health care was definitely
running much more on the negative side. And as it turns out, for good reason.
There were just simply some factual errors in the piece that made it more
partisan than it sounded when I first read it. And many readers justifiably
took me to task for that.
attracted me to the piece to begin with was the central fact that the
incentives within the health-care bill give businesses significant monetary
reasons to do things that are not in what I think of as the best interests of
the economy or labor. Businesses will be able to save a great deal of money by
canceling their employer-paid insurance plans and simply paying the fine and
offering their employees some kind of cash payment to buy managed-care
programs. Go to Friday’s USA Today. Read
the story on Medicare-managed health care, about the shortage of specialty
doctors and the denial of benefits that I think of as routine in my more or
less plain-vanilla health insurance plan. I don’t think people are going to be
there is the incentive to hire part-time employees over full-time, and thereby
not have to provide insurance. This is already an issue I see every week with
my own kids, as getting full-time jobs even in relatively OK Texas is an issue.
As a nation, we are already witnessing a disconcerting and still-rising level
of part-time employment. Do we really want to encourage more of that?
there is one thing we know in economics (and there are admittedly distressingly
few of them), it is that people respond to incentives, whether intended or
unintended. I don’t think the writers of the health-care bill intended to
increase part-time employees, keep payrolls under 50 employees, or encourage
businesses to dump their health insurance or move to outsourcing, etc. But if
you are a business person facing budget and sales shortfalls, rising prices,
and fierce competition (is there any other kind?), saving $2-3,000 per employee
is going to be tempting. When two part-time employees cost $3-6000 a year less
than one full-time? What do you choose when the boss is breathing down your
neck about expenses? The recent employment data tells me that already
businesses are opting for more part-time workers. It doesn’t work for every
business, but it will for a lot of them. I hope that is not going to be the
case, but I want policies that encourage and reward good corporate behavior.
many people who read the letter, the factual errors obscured the main points.
Frankly, I understand. I often have that reaction in reading other material
myself. But Outside the Box is not “other material.” I put this out there, and
with the core standards we have in place, I should not have been as tone deaf.
I WILL be better. And in a few
weeks, we will have a new website with reader forums and feedback (targeting
December – this is a major project and they always take more time than I would
things I did take away from the feedback. First, most of my readers are
amazingly civil in an era where simple civility on the internet is not the
norm. And second, this is an extremely emotional issue. Most of us have
stories about people who have been hurt by not having access to health care.
And it is a lot more complex, with more moving parts, than any issue we face as
I spent some time with Newt
Gingrich this Wednesday. He seems to me surprisingly upbeat about the potential
for solutions to the health-care issue. He points out that there are some
amazing medical advances just around the corner. A cure for Alzheimer’s would
save, according to Newt, about $20 trillion over the coming decades. Cancer?
Heart disease? My friend Pat Cox suggests we are on the edge of a tsunami of
But we have been seemingly on the edge for a long
time. As I wrote a few weeks ago:
Let's look down the road. I think we will at best
be in a Muddle Through Economy for the next two years. Unemployment is going to
be above 8%, best-case, in 2012. If the Bush tax cuts are not extended, in my
opinion it is almost a lock that we go into recession next year, unemployment
goes to 12%, and underemployment gets even worse. That is not a good climate
for Obama and the Democrats in 2012. It is especially bad when you look at the
number of Democratic Senate seats up for re-election that are in conservative
states. The Republicans could take a serious majority in the Senate.
And then what? Right now Republicans are running on
promises that they will not cut Medicare and Social Security, but are going to
reduce spending and get us closer to a balanced budget. But everyone knows that
the only way to get the budget into some reasonable semblance of balance will
be to either cut Medicare benefits or increase taxes.”
There are only the two options. Yes, you can reform
medical care, and I think much of Obamacare should certainly be repealed, but
that does not get us anywhere close to dealing with the real issue, and that's
a fact. There are tens of trillions in unfunded liabilities in our future,
which must be dealt with.
Let me be very clear on this. I am not really
worried about the supposed $75 trillion in unfunded Medicare liabilities in our
future. That is an impossible number. If something can't happen it won't
happen. Long before we get to that apocalypse, we find a bond market that
simply refuses to fund US debt at anywhere near an affordable cost. Crisis and
chaos will ensue.
People only accept change when they are faced with necessity, and only
recognize necessity when a crisis is upon them.
- Jean Monnet
The simple reality is that if We the People of the
US want Medicare, in even a reformed and more efficient manner, we must find a
way to pay for it. It will not be cheap. Raising income taxes on the
"rich" is not enough. You have to go back and raise income taxes on
the middle class, too. Oh, wait, that will be a drag on the economy and consumer
spending. And in any event it will not be enough.
The only real way to pay for those benefits will be
a value-added tax, or VAT. And while it could be introduced gradually, let
there be no mistake that it will be a drag on economic growth. Government
spending does not have a multiplier effect on the economy. It is at best
neutral. What creates growth is private investment, increases in productivity,
and increases in population. That's it. Tax increases have a negative
A significant VAT along with our current income
taxes will give us an economy that looks more like the slow-growth,
high-unemployment world of Europe. Can we figure out how to deal with that?
Sure. But it is not growth-neutral.
Republicans in 2013 will be like the dog that caught
the car. What do you do with it? The last time they (embarrassingly, we) really screwed it up. The defining political
question of this decade will not be Iraq or Afghanistan, or the environment or
any of a host of other problems. The single most important question will be
what do you do with Medicare? Cut it or fund it? Reform it for sure, but reform
is not enough to pay for the cost increases that will come from an increasingly
aging Boomer generation.
There is no free lunch. At some point, Republicans
cannot run on "no cuts in Medicare" and "no new taxes" and
be honest. At least not this decade. Maybe when we have cured cancer and
Alzheimer's and heart disease and the common cold at some future point, medical
costs will go down, but in the meantime we have to deal with reality.
You may be able to fool the voters, but you will
not be able to fool the bond market. Not dealing with reality will create a
very vicious response. Ask Greece.
And that is the national conversation we must have
with ourselves. There is a cost to government. There is a cost to extended
Medicare benefits. (I am blithely assuming we deal with all the
"easy" stuff like Social Security, and make real cuts in other
Enough on medical issues. Let’s jump into the rest
of the letter.