Friday, March 19, 2010

The Trojan Krugman

As a faculty member of a state university in Maryland, I am used to hearing other faculty members substitute Democratic Party talking points for conversation, as most of them are True Believers who defend their party with religious zeal. If the Party declares a certain State of Being, then whatever it decrees becomes the New Reality.

It does not surprise me that professors in English or Political Science would hold to such views, as they are open political partisans. However, I expect more from economists, and especially economists who have Nobel Prizes. I cannot imagine ever having heard political talking points from someone like F.A. Hayek, George Stigler, Gary Becker, or James Buchanan, especially in print. These Nobel laureates believed that their job was to promote and apply sound economic theory, not be shills for political parties or their chosen candidates.

Unfortunately, Paul Krugman is not held to the same standards, nor does he hold himself to any standards but those of stooping to the latest set of talking points from the White House, Nancy Pelosi, and Harry Reid. Thus, his latest column demonstrates beyond a doubt that he is willing to promote pure fantasy when it comes to budget numbers, and work in tandem with his part-time employer, the New York Times, to try to convince us that something akin to Harry Potter Economics really exists.

I will go one step further: I believe wholeheartedly that Krugman knows this bill will be disastrous and will create utter chaos in the field of medical care. Into that void will ride the deus ex machina government with a "new" universal plan that will be something out of Canada Care or the British National Health Service. The state takeover of medical care then will be complete. If anything, this bill is the Ultimate Trojan Horse that once passed is going to guarantee that what is left of private enterprise in medical care will be destroyed.

Let me examine some of his statements. First, he gives anecdotes about people who have had their medical insurance revoked for contracting HIV or for other reasons. The new health "plan," he argues, would guarantee that no one could be denied insurance coverage for medical care. He states:
So what’s the answer? Americans overwhelmingly favor guaranteeing coverage to those with pre-existing conditions — but you can’t do that without pursuing broad-based reform. To make insurance affordable, you have to keep currently healthy people in the risk pool, which means requiring that everyone or almost everyone buy coverage. You can’t do that without financial aid to lower-income Americans so that they can pay the premiums. So you end up with a tripartite policy: elimination of medical discrimination, mandated coverage, and premium subsidies.
Now, I can tell you that if automobile or homeowners insurance were put under such rules, premiums would skyrocket, and everyone can understand why. Or, what about life insurance coverage? Should life insurers be forced to charge the same premiums for all applicants, regardless of their health? What would such a move do to the cost of premiums? I think we know the answer.

Therefore, Krugman is supporting a law that is guaranteed to force up the costs of insurance premiums, yet he also is supporting a bill that will impose price controls on medical insurance. My sense is that Krugman understand just what this means, for even he has some knowledge of the very real economic dislocations price controls will bring.

Into the chaos will ride the government, which will offer to subsidize the insurance companies, as they will experience real losses. However, I also think there could be another future, one that would take a page from the Marxist government of Salvador Allende of Chile nearly 40 years ago.

Allende's government printed money in massive quantities, swamping the Chilean economy with worthless paper, driving people to barter and throwing the economy into chaos. The government also imposed draconian price controls in which government-owned businesses were permitted to raise prices, but private enterprises could not. Those private companies that were caught raising prices to cope with inflation were confiscated by the government and the owners not compensated.

I suspect that this will be the future of private health insurance in the United States, and it is what Krugman and his friends hope will be the outcome. The current legislation does impose price controls on insurance premiums, yet also increases the demand for insurance through mandates and subsidies. This guarantees chaos, and even a partisan economist like Krugman can see through this charade.

However, instead of promoting economic principles, Krugman promotes outright fabrications. Take the following from his column, for example:
Can we afford this? Yes, says the Congressional Budget Office, which on Thursday concluded that the proposed legislation would reduce the deficit by $138 billion in its first decade and half of 1 percent of G.D.P., amounting to around $1.2 trillion, in its second decade.

But shouldn’t we be focused on controlling costs rather than extending coverage? Actually, the proposed reform does more to control health care costs than any previous legislation, paying for expanded coverage by reducing the rate at which Medicare costs will grow, substantially improving Medicare’s long-run financing along the way. And this combination of broader coverage and cost control is no accident: It has long been clear to health-policy experts that these concerns go hand in hand. The United States is the only advanced nation without universal health care, and it also has by far the world’s highest health care costs.
Krugman never believed the rosy CBO projections when the Republicans were in power, but suddenly that same office is the Promoter of Truth. If anyone truly believes that this plan, with its mandates, restrictions, new criminal penalties, and massive subsidies is going to reduce the real costs of medical care and simultaneously lower the federal deficit, I have some real estate at 1600 Pennsylvania Avenue that I want to sell to you.

This is fraud, pure fraud. However, Krugman also slyly gives away his real goal: Fully Nationalized Medical Care:
Can you imagine a better reform? Sure. If Harry Truman had managed to add health care to Social Security back in 1947, we’d have a better, cheaper system than the one whose fate now hangs in the balance. But an ideal plan isn’t on the table. And what is on the table, ready to go, is legislation that is fiscally responsible, takes major steps toward dealing with rising health care costs, and would make us a better, fairer, more decent nation.
Guess what? As the bedlam that will result from this "fiscally responsible" legislation increases -- and I have no doubt that the House Democrats will cave in the end -- the next step (and the next step after that) will be to create the "single payer" plan that Krugman has wanted all along.

I am no fan of the current system. Third-party payments for rudimentary medical care through insurance are responsible for the costly mess that is U.S. medical care. If we purchased food or automobiles via the same payment system through which we purchase medical care, there would be runaway costs and utter chaos in those markets, too.

I'll go a step further. Even if Republicans were to take back the Congress in the upcoming elections, there is no way this bill would be repealed, no matter what they might have promised in the heat of a political campaign. This is a bill that, in my view, is purposely designed to drive everyone to a "single-payer" government plan, as what exists in Canada. However, it also will be an entitlement, and once entitlements become law, they are politically-impossible to eliminate.

No, Americans are going to be stuck with something that will cost them much more of their earnings -- and produce inferior care -- than a true free-market in medical care would produce. Unfortunately, we now are so far removed now from such markets in that sector that most people would be afraid to take the plunge and eliminate the government controls and subsidies. Thus, we ultimately will be stuck with "single-payer," and the long lines and waits and denial of care that will accompany it. Sooner or later, the Trojan Horse will open and government minions will take over everything in medical care (that they don't already control).

In his promotion of this monstrous bill, I believe that Paul Krugman really does understand that, no, it won't cut costs, no, it won't reduce the deficit, and, yes, it ultimately will lead to an utterly politicized system. For once, I wish he would tell the truth about what is to happen, but Krugman long ago gave up telling the truth in exchange for being a shill and a political operative.


William P. Dupre said...

What's the record on CBO projections? Has anyone done a study?

William L. Anderson said...

I have not done it, although it would make for a great paper! Maybe I need to take on this thing as a project.

Jardinero1 said...

I agree with the author’s premise that the current bill will wreck the current system. I also agree with the author that this is merely phase one in a plan for a National Health Service or single payor plan. In politics, timing is everything and I am not sure the Dems will get a chance for phase two if they are routed in fall, 2010. If they are routed and the system is wrecked, its hard to say what the public might demand for a replacement.

I have a different analysis as to the final outcome. You have to agree with the following premises: The current bill with its skewed incentives will encourage employers to stop providing coverage and discourage individuals from buying coverage until they really, really need it. The only people who could justifiably bear the expense of the gold plated plans being foisted are those whose hospitalization or treatment exceeds the cost of the plans. This is going to be a very small group of people. Thus, by 2012 there will be legions of individuals without health insurance and they will be paying for their own healthcare delivery entirely out of pocket.

Thus, I hope the bill passes. Nothing could be better for pricing and healthcare delivery than to return bargaining and payment for healthcare to uninsured individuals paying out of their own pocket. When prices drop as doctors and hospitals, once again, have to haggle with their patients over payment and treatment, the public might find that wrecking the current system is a positive outcome.

William L. Anderson said...

The only problem is that the bill states that going without health insurance is illegal. The IRS has the capacity in this bill to investigate you and to levy a tax on you. Should you refuse to pay, you can go to prison for tax evasion.

Jardinero1 said...

In the two version that are floating, one levies a fine of 2100 dollars and the other a fine of two point one percent of adjusted gross income. Regardless of which version passes, unless you are in the top one percent of earners it is cheaper to pay the penalty than buy the insurance. Likewise for employers who throw their employees in the pool. The penalty for employers is cheaper than buying insurance for employees.

William L. Anderson said...

But, sooner or later, federal prosecutors will turn that civil penalty into a criminal one. I have seen it done time and again in which actions that once were handled in a civil arena are moved to criminal court. Don't think for a second that the government would not hesitate in adding to the prison population.

Brian J. Gladish said...

Such a pessimist! I thought they would just send chronic offenders to re-education camps!

Paul said...

This site has become one of my favorites. Not only do you deconstruct the words of a known EINO (Economist in name only), your detailed analysis of current issues are refreshing. Thank you for writing in a manner that us less sophisticated readers can understand.

William P. Dupre said...

Ditto what Paul said

William L. Anderson said...

Thanks for the kind words!

Lilly Walsh said...

What an intelligent, illuminating post. I have become a very avid reader of this blog, many thanks to the author for creating it!

Richie said...

Regarding the record on CBO projections, do you mean on specific items (e.g. the cost of Medicare) or its record on surplus/deficit projections?

William P. Dupre said...

I'd like to see the CBO record on scoring legislation comparable to the health care bill. But surplus/deficit projects would be interesting to see as well.

Peter said...

William, as a health insurance company actuary I completely agree with your broader point. The health care bill won't bring down costs and isn't meant to. It is meant to put the private insurers in an untenable position in which they have to continue to raise rates (on more people since the sickest individuals can now sign up and get a subsidized rate) and the public gets madder and madder at them. In the end our secular Savior, the Federal Government, will respond to the people's outcry and nationalize the system.
The American people are resistant today to outright nationalization but the powers that be know the salami slice method will work in the long run. S.O.S.

Russ Nelson said...

Even though people successfully eat, at low cost and with great variety and quality, every day, they somehow don't trust free markets to provide health care. We need a president who understands that to succeed, he must not regulate markets.

William L. Anderson said...

Peter, I fully agree. What the legislation does is to put insurers in an impossible situation in which they are expected to increase their payouts but not their income. That is not tenable.

Unknown said...

Thank you sir for this fabulous blog!

To Russ Nelson; while it is true that people in America successfully eat at low cost and with great variety, we do not have a free market when it comes to food products. the amount of bureaucratic interventionism in this market is truly astounding.

the UDSA, FDA and the litany of other regulatory agencies that control the US agricultural market in the name of "public health" are (IMO) the worst assaults on personal freedom existent in America today.