Gotta love war and more war!

From Paul Krugman's declaration that a new war would strengthen the U.S. economy to the latest salvo from the NY Times that we need to have the U.S. Armed Forces run the country, or at least the business sector, it seems that fascism is now the Official Doctrine of the "Newspaper of Record."

One really needs to read this column by Nicholas Kristof to believe it. Big Brother loves you.

Collective goods versus goods

By declaring medical care to be essentially a "collective good," Paul Krugman and others are saying that the state should take over the creation and distribution of the good and treat it as something that should be limited, but the limited distribution to be decided by the state. In other words, Krugman does give a back-door nod to the Law of Scarcity, but at the same time claims that medical care is a "special case" that should be guided by government regulators.

In reading the comments on yesterday's post, I am struck by the outright hostility by some to ANY kind of entrepreneurship in medical care. In other areas of the economy, entrepreneurs have managed to bring resources from lower-valued to higher-valued uses, but somehow, medical care is different. Not only do entrepreneurs artificially push up real costs, according to at least a couple of the people making comments, but their very presence in medical care is outright evil.

If medical innovations actually raise real costs, then I suspect that what these commenters are saying is that we need to go back to medical care that existed perhaps when I was a child, when we worried about polio, measles, whooping cough, malaria, rheumatic fever, mumps, and lots of other diseases. We should not have MRI's, arthroscopic surgery, (God forbid lasik surgery, given that people pay out-of-pocket for that), CAT-Scans and a host of other things that simply were not available when I was hospitalized in the 1950s.

Instead, we should have state-provided and state-driven care that is determined by panels of "experts" who apparently are more wise than anyone else. I'm sure that will create a wonderful state of care, and it will be cheaper. (Krugman happily called them "death panels" and recommended them highly -- using that term -- but now wants us to believe that only critics of KrugmanCare are using the term.)

In other words, if I read the commenters and Krugman correctly, we need more people to die sooner, or be crippled by disease and inadequate (but cheap) surgery techniques. And if anyone wishes to engage in medical entrepreneurship, well, that person should go to prison for life.

Paul Krugman: government eliminates opportunity cost

Ever since the Progressive Era, Americans have been bombarded with the notion that all goods really are collective in nature. Thus, we hear about "our food supply" and "our oil," and "our healthcare."

If goods truly are collective, then it ultimately is up to that most collective entity, government, to "distribute" them. Pay no attention to the real problems that arise out of the notion of collective things, which is nothing but socialism using different terms. And even Paul Krugman cannot "solve" the central problem of socialism: economic calculation.

In his column on Medicare, Krugman manages to wrap a falsehood around a central kernel of truth, that being that on paper, Medicare costs less than private insurance. He writes:

...here’s what you need to know: Medicare actually saves money — a lot of money — compared with relying on private insurance companies. And this in turn means that pushing people out of Medicare, in addition to depriving many Americans of needed care, would almost surely end up increasing total health care costs.

The idea of Medicare as a money-saving program may seem hard to grasp. After all, hasn’t Medicare spending risen dramatically over time? Yes, it has: adjusting for overall inflation, Medicare spending per beneficiary rose more than 400 percent from 1969 to 2009.

But inflation-adjusted premiums on private health insurance rose more than 700 percent over the same period. So while it’s true that Medicare has done an inadequate job of controlling costs, the private sector has done much worse. And if we deny Medicare to 65- and 66-year-olds, we’ll be forcing them to get private insurance — if they can — that will cost much more than it would have cost to provide the same coverage through Medicare.

And what causes this problem? Private enterprise, of course:

And then there’s the international evidence. The United States has the most privatized health care system in the advanced world; it also has, by far, the most expensive care, without gaining any clear advantage in quality for all that spending. Health is one area in which the public sector consistently does a better job than the private sector at controlling costs.

I will give Krugman his argument as far as it goes, but I think that a few points just might be in order, points that Krugman conveniently ignores.

The first is that Medicare is NOT subject to state mandates, and that is a huge factor, as mandates drive up the cost of insurance. (I won't ask why Krugman ignores this point except to say that it does not fit with his narrative that socialism is morally and economically superior to private enterprise.)

Second, Medicare sets the payment schedule and doctors that treat Medicare patients have no other choice. Patients can sue insurance companies and the media generally will side with patients and doctors in having the courts order insurers to spend lots of extra money. However, that does not happen (to my knowledge) with Medicare.

Third, there is no way that the advent of third-party payments will NOT result in higher costs, as decisions for care are made by people who do not have a direct interest in the outcomes. Keep in mind that if we had third-party payments for buying other things, like food, then food prices would be higher than they are now.

Fourth, Krugman falls for the silly doctrine that medical care is "different" and not really subject to the laws of economics. Now, keep in mind that when we say that something is subject to economic laws, what we are saying is that it is a scarce good. If economic laws don't apply, then the good cannot be scarce.

I cannot believe for a second that Krugman would claim that medical care is a non scarce item, yet, he writes about medical care as though it is not scarce. For example, take his long-held view that medical capital drives up costs. If that were true, then it would be the first time in economic history that the presence of capital (at least developed in a free market) forced real costs to be higher than they would be in the absence of capital.

Would Krugman ever write that the development of the assembly line made automobile costs higher? If that were true, then the story of how Henry Ford was able to bring down the price of a new car from about $1,000 to less than $300 simply would be non-existent.

If, indeed, capital were to be responsible for higher real medical costs, then one would have to look at other factors to see why this would be so, for it makes no economic sense by itself. Unfortunately, Krugman is not willing to go outside the narrative that medical care is "different."

Moreover, if government by taking over payments can eliminate opportunity cost (or make it substantially lower), then why does not government involve itself in everything else and lower costs? For that matter, if government by simple fiat can create such miracles, then why has socialism failed in places like Cuba, North Korea and the U.S.S.R.?

Rule by inflation

When John Maynard Keynes called for the "euthanasia of the rentier," he meant that the government's monetary authorities should hold the rate of interest low enough to where people who earn money from lending no longer would be willing to lend. Thus, the "rentier" would disappear from the scene.

Paul Krugman is repeating that call, and now claims that it is that evil "rentier" that is dragging down the economy. If only the authorities were willing to listen to him and have more inflation; if and only then would people be able to find jobs and the economy would hum along nicely:

While the ostensible reasons for inflicting pain keep changing, however, the policy prescriptions of the Pain Caucus all have one thing in common: They protect the interests of creditors, no matter the cost. Deficit spending could put the unemployed to work — but it might hurt the interests of existing bondholders. More aggressive action by the Fed could help boost us out of this slump — in fact, even Republican economists have argued that a bit of inflation might be exactly what the doctor ordered — but deflation, not inflation, serves the interests of creditors. And, of course, there’s fierce opposition to anything smacking of debt relief.

Looking at the Fed's balance sheet post TARP, one hardly can say that the Fed has not been "aggressive" in trying to spread more dollars throughout the world. However, I suspect that when Krugman calls for the Fed to be "more aggressive," he means the Fed finding a way to purchase short-term Treasuries directly, as opposed to buying them on the secondary market. (The original Federal Reserve Act prohibits the Fed from such direct purchases, although given that Washington no longer has to abide by the same laws that govern the rest of us, I am sure Ben Bernanke can find a way around such pesky requirements.)

Krugman's call for more inflation is based upon his belief that inflation benefits low-income people and hurts the wealthy. Thus, the reason that inflation is not higher is due to unwarranted lobbying by the rich, who are benefiting at the expense of the rest of us.

Now, when the main financial crisis hit in 2008, I argued (contra Krugman) that not only would bailouts retard any recovery, as they would prevent or postpone liquidation of bad assets, but also would increase the political strength of the very people who had driven the economy over the cliff. Krugman now thinks that the people on Wall Street have too much political influence, but he fails to see the connection between the bailouts and their political strength.

I will go even further. Krugman is absolutely wrong on inflation, in that the people most hurt by it are NOT the rich, but rather the small savers and people on fixed incomes. (Krugman claims that people on SS and other fixed incomes would not be hurt because SS is indexed to inflation.)

Here is the problem, and it demonstrates that Keynesians (once again) really have no concept of money and see it only as a "quantity variable." Yet, what actually happens with a burst of inflation?

As Henry Hazlitt points out in his excellent Economics in One Lesson, inflation creates a "mirage" of prosperity at the beginning, but in the end is like the "Dead Sea fruit that turns to dust and ashes in its mouth." A new bout of inflation does not raise all prices and incomes at the same time. Instead, those who receive the new money first receive the benefits, while those at the back of the line (small savers and, yes, people on fixed incomes, even those incomes indexed to inflation) bear the costs. Murray Rothbard writes:

Inflation, then, confers no general social benefit; instead, it redistributes the wealth in favor of the first-comers and at the expense of the laggards in the race. And inflation is, in effect, a race--to see who can get the new money earliest. The latecomers--the ones stuck with the loss--are often called the "fixed income groups." Ministers, teachers, people on salaries, lag notoriously behind other groups in acquiring the new money. Particular sufferers will be those depending on fixed money contracts--contracts made in the days before the inflationary rise in prices. Life insurance beneficiaries and annuitants, retired persons living off pensions, landlords with long term leases, bondholders and other creditors, those holding cash, all will bear the brunt of the inflation. They will be the ones who are "taxed."

He continues:

Inflation has other disastrous effects. It distorts that keystone of our economy: business calculation. Since prices do not all change uniformly and at the same speed, it becomes very difficult for business to separate the lasting from the transitional, and gauge truly the demands of consumers or the cost of their operations. For example, accounting practice enters the "cost" of an asset at the amount the business has paid for it. But if inflation intervenes, the cost of replacing the asset when it wears out will be far greater than that recorded on the books. As a result, business accounting will seriously overstate their profits during inflation--and may even consume capital while presumably increasing their investments.

In Krugman's Keynesian world, however, none of that matters. If anything, businesses are parasites and government, by creating "new money," also creates wealth. That really is the "New Economics" in a single sentence.

War, war, war!! Yeah, that will make us prosperous!

Krugman is at it again. During a recent appearance on ABC's "Sunday Morning," he once again made the Keynesian declaration that war is good for the economy:

“If we had the threat of war, had a military buildup, you’d be amazed at how fast this economy would recover.”

I'm not sure what we call Iraq, Afghanistan, Libya, and wherever else the U.S. Armed Forces are shooting people. I think I call it war, and we can see just how good it has been not only for our economy, but also the economies of the lands this government has attacked.

No, I don't think Krugman is endorsing even more military buildups and wars. (The Neo-cons, conservative Republicans, and many in the Tea Party have been beating the war drums loudly enough.)

Is Medicare sacrosanct?

In his column today, Paul Krugman declares that the Ryan plan for Medicare is something out of "vouchercare" and would be inferior to the current system. On one side, I am agnostic about this; a voucher scheme still has the government not only in control of the purse strings, but also acting as the distributor of medical care.

Now, Krugman has no problem with either of these roles of government, but he wants the state to send the checks because he says that it will better "control costs." He then uses Canada's medical system as a positive example of cost control.

While Krugman is free to say what he wants, I find this statement to conflict with what many people are saying about Canada's system:

Consider Canada, which has a national health insurance program, actually called Medicare, that is similar to the program we have for the elderly, but less open-ended and more cost-conscious. In 1970, Canada and the United States both spent about 7 percent of their G.D.P. on health care. Since then, as United States health spending has soared to 16 percent of G.D.P., Canadian spending has risen much more modestly, to only 10.5 percent of G.D.P. And while Canadian health care isn’t perfect, it’s not bad.

Bad, of course, is a relative term. There is almost no medical innovation in Canada, and much of medical care there is a time warp, as medical capital deteriorates and there is no incentive for medical providers to acquire new capital.

Take the following example: Montreal, which has about three million people, has three MRI devices, while Allegany County, Maryland, where I work, has 80,000 people and three such devices. In Montreal, a person in need of an MRI has to wait six months (unless the person has political connections), while in Allegany County, the wait is miniscule, perhaps a day to set up the appointment.

Why the disparity? To a Canadian medical provider, an MRI is just a cost, as the firm cannot make a profit from this piece of capital. So, one of the most innovative medical devices today is seen as pure cost in Canada.

When one speaks of lowering costs, we are talking administrative numbers, not opportunity cost. (Yes, I know. Keynesians believe that Opportunity Cost is an oppressive tyranny left over from those bad old Classicals.) The real costs are borne by individuals who have care withheld from them, and that is endemic in Canada, whether or not Krugman wants to admit it.

The larger issue as I see it is that Krugman believes that medical care should be in control of the state. He simply cannot see any role for markets and private enterprise, entrepreneurship and, Horrors!, real prices. Medical innovation, as he sees it, is the result of pure research and that can be done much more efficiently from the government side, since political considerations never enter into any production equation. In other words, Krugman actually believes that state-run care will provide better results at cheaper costs.

Thus, his belief that Medicare, which was created 46 years ago, is Holy and Sacrosanct. Despite the fact that it, like everything else associated with the U.S. Government is going broke, Krugman still remains the True Believer that government medical care will give us good care, plenty of innovation, and low costs. Not possible.

While I have no idea how he would respond to a recent action by the FDA, which seized "birthing pools" because the government claims they are "unregistered medical equipment." As one bureaucrat declared:

Pregnancy is an illness and birth is a medical event. Therefore, a pool that a woman gives birth in should be classified as medical equipment.

Interestingly, Portland, Oregon, hardly is a bastion of conservative Republicanism or even libertarianism. It is a community heavily steeped in statism, and so the reality of the very statism that they support crashes down upon them. (Since the FDA considers pregnancy to be a disease, maybe that is why the government is so anxious for there to be abortion on demand.)

Who is to blame for the coming downturn?

When Barack Obama took office, Paul Krugman urged him to emulate Franklin Roosevelt, and it looks as though Obama might just achieve what FDR did: have a depression within a depression.

As the economy begins another long and sad slide, Krugman is claiming that our government just did not spend enough money the past few years, and that is why we are headed south:

Back when the original 2009 Obama stimulus was enacted, some of us warned that it was both too small and too short-lived. In particular, the effects of the stimulus would start fading out in 2010 — and given the fact that financial crises are usually followed by prolonged slumps, it was unlikely that the economy would have a vigorous self-sustaining recovery under way by then.

Krugman's retrospective is his usual self-aggrandizing nonsense, the idea being that had Obama borrowed and spent an extra trillion, dollars, Krugman then would have argued for two trillion, and had the administration dumped two trillion, Krugman would have demanded four. And so it goes.

What Krugman does not say is that like FDR, Obama went on a regulatory rampage, and on top of that, the government continues to pursue wars abroad and now openly admits to having CIA-sponsored death squads roaming the globe in search of the "bad guys." Obama has openly demonstrated himself to be quite hostile to private enterprise (of the non-subsidized variety), and the government through the Federal Reserve System is showering the world with dollars, yet he wonders why U.S. business firms do not engage in long-range capital planning and expenditures.

As Robert Higgs notes in this excellent essay, the Roosevelt administration created huge amounts of "regime uncertainty," which led to a slowdown of private investment. It seems that Obama, through his rhetoric, his initiatives, and the brazen hostility of Washington toward private investment, we are seeing a repeat.

Krugman, of course, won't mention this point, and why should he? Keynesians believe that all we need to do is to shower an economy with money and everything else follows. Well, it doesn't.