One Size Fits All "Cost Reduction"

When I recently spoke at a college in Michigan, I met a couple of women from Canada who told me that whenever they need serious medical care, they come across the border to the USA. In fact, they said there are clinics in this country that specialize in treating Canadians who either are denied care in their own country or must wait in long lines.

The reason is simple: in the name of "controlling costs," the Canadian government through its "single-payer" plan simply withholds care through a "one-size-fits-all" system -- and that is what Paul Krugman claims we need to do here. (When he confidently asked an audience of Canadians if they believed they had a great system, he got responses that truly puzzled him, and certainly were not what he expected.)

(After the speech, a woman in the audience whose husband is a doctor told me that her husband spends about six hours a day doing paperwork in order to satisfy the government requirements. Please explain to me how this is any kind of positive change, especially considering that ObamaCare is going to pile on even more bureaucratic procedures into medical care.)

In a recent post, he claims that the way to get budget savings is for the government to withhold care. He doesn't put it that way, of course. Only a Keynesian and fellow-traveling statist could believe that when governments pile administrative procedures in medical care, such actions actually reduce real costs.

Like most statists, Krugman believes that costs are administrative numbers and the way that one reduces real costs is simply to order them to fall. So we get things like:

And the truth is that we know a lot about how to do that — after all, every other advanced country has much lower health costs than we do, and even within the US, the VHA and even Medicaid are much better at controlling costs than Medicare, and even more so relative to private insurance.

The key is having a health insurance system that can say no — no, we won’t pay premium prices for drugs that are little if any better, we won’t pay for medical procedures that yield little or no benefit.

Sorry, but this isn't economics. It is babble. Krugman really does believe that markets behave exactly like bureaucracies, and that one can substitute bureaucracy for market exchanges and actually get superior results.

Every "market" in which government involves itself with massive "oversight" or outright running things is going to have increasing real costs, as careerist bureaucrats find ways to pile on procedures and paperwork. However, in American medical care, we often find that those procedures that neither are covered by insurance or government payments are marked by falling prices. Yes, why is it that things like lasik surgery have been becoming increasingly affordable despite the lack of third-party payments? (Or, maybe I should add that it is because of the lack of third-party payments.)

Like all good Keynesians, Krugman believes that markets over time drive up real costs, and the only way to make things affordable is for government to order costs to fall. That is not the real record of capitalism, of course, but Keynesians ignore that hard fact. Instead, they want us to believe that if government just could provide everything administratively, that we would be able to live in splendor and wealth. Just like they did in the U.S.S.R. WHERE THEY HAD FREE HEALTHCARE!

Krugman and Medical Care: We Need More Socialism

I've not posted since the U.S. Supreme Court upheld the insurance mandate of Obamacare, and am leaving much of the back-and-forth to other writers. Peter Schiff writes that if the government really does have the authority to levy a "tax" upon any citizen who does not purchase what the government demands they buy, then there really are no more checks on the power of government.

I tend to agree. In the last decade, we have seen exponential growth of the surveillance state, the prison state, the militarization of the police, and we now have a president who believes he has the authority to order missile strikes anywhere in the world and to kill whomever he likes -- and it all is done "under color of law." In other words, lawless behavior by state agents now is an oxymoron, since by definition, state agents cannot break the law.

This SCOTUS decision will unleash the IRS in a way that will astound people, and one can bet that the powers that government seized with the passage of the Patriot Act and other such legislation will be put to use in new and oppressive ways. Furthermore, this decision will further unleash to power of federal prosecutors to criminalize just about anything they choose.

(I deal with their brutality of the innocent in my other blog, not that Keynesians really care about the brutality of the state. They just want to see more because, in their minds, a leftist state cannot be brutal since by definition, socialism cannot oppress.)

However, according to Krugman, the decision by the Supreme Court is something I should cheer because I now am a "winner." Funny, I don't feel like a winner, probably because I actually understand what socialism does to medical care over time, something that I doubt any Keynesian ever could understand because, frankly, Keynesians don't understand (or want to understand) the simple act of production. And forget the role of entrepreneurship in medical, as Keynesians would consider even the possibility of such to be anathema.

The Keynesian-Socialist View of Production vs. Ludwig von Mises and Economic Calculation

During the Socialist Calculation Debate between Ludwig von Mises and Oskar Lange in the 1930s and 40s, Lange demonstrated what I would call a mainstream view of how production and the firm might work. Indeed, what he said was hardly different from what I was taught in my production classes.

In mainstream neo-classical analysis, one analyzes production via the production function and input prices. (Yes, I constructed many a cost function using both things.) If one has both, then one can deduce the optimal use of inputs in production. (When graphing these items, the "optimal" position -- where costs are minimized -- is found where the production function, or isoquant, is tangent to the isocost.)

Lange held that a production function was pretty easy to find, and that government central planners could find prices simply by checking the commodities exchanges in the capitalist world, and with both in hand could then "plan" an entire economy by solving a huge batch of simultaneous equations. In fact, economists in the former Soviet Union became quite good at solving these equations by using matrices, and while their economic calculations generally turned out to be disastrously applied, nonetheless the world of matrix algebra advanced.

Socialism, Lange argued, actually would be more effective than capitalism because capitalists, after all, had to waste time and money making profits. Socialist production, having solved the issue of economic calculation, would produce more goods that were superior to what might be produced in the capitalist economies, or so he declared.

That is the essential argument that people like Krugman and Paul Craig Roberts have made about medical care. Everyone knows the "medical production function," right? So, what's the problem? For example, Roberts declares:

The American health care system is the most expensive of all on earth. The reason for the extraordinary expense is the multiple of entities that must make profits. The private doctors must make profits. The private testing centers must make profits.The private specialists who receive the referrals from general practitioners must make profits. The private hospitals must make profits. The private insurance companies must make profits. The profits are a huge cost of health care.

However, he adds, "single-payer" (which essentially is socialist or fascist, since fascism left much production in private hands with the state declaring what should be produced) eliminates the problems caused by profits:

The beauty of a single-payer system is that it takes the profits out of the system. No one has to make profits. Wall Street cannot threaten insurance companies and private health care companies with being taken over because their profits are too low. No health-provider in a single-payer system has to worry about being displaced in a takeover organized by Wall Street because the profits are too low.

What Roberts does not say, but what is obvious from his words is that we should not stop at medical care. If we know the proper production function for all aspects of medical care (which seems to be an assumption here) and if government simply by fiat can declare whatever prices it sees fit with no problems of resource misallocation, then directing a "rational" system simply is a matter of doing the math.

Roberts would argue, not doubt, that many of the profits in the medical system are not due to "free markets," but rather government favoritism given to politically-connected firms. Yet, even though government involvement via a regulatory system politically creates rents, his "solution" is for government to have even more regulatory power. Yet, if government already is a toady of private enterprise, as he says, then why should one expect that by the simple act of giving government even more power in the pricing and paying of medical care, that corruption would disappear and regulators suddenly would become pure in heart and be possessing the ability to perfectly allocate medical resources?

Likewise, Krugman argues that markets are the problem, and certainly not a solution in medical care, writing:

There are two strongly distinctive aspects of health care. One is that you don’t know when or whether you’ll need care — but if you do, the care can be extremely expensive. The big bucks are in triple coronary bypass surgery, not routine visits to the doctor’s office; and very, very few people can afford to pay major medical costs out of pocket.

This tells you right away that health care can’t be sold like bread. It must be largely paid for by some kind of insurance. And this in turn means that someone other than the patient ends up making decisions about what to buy. Consumer choice is nonsense when it comes to health care. And you can’t just trust insurance companies either — they’re not in business for their health, or yours.

This problem is made worse by the fact that actually paying for your health care is a loss from an insurers’ point of view — they actually refer to it as “medical costs.” This means both that insurers try to deny as many claims as possible, and that they try to avoid covering people who are actually likely to need care. Both of these strategies use a lot of resources, which is why private insurance has much higher administrative costs than single-payer systems. And since there’s a widespread sense that our fellow citizens should get the care we need — not everyone agrees, but most do — this means that private insurance basically spends a lot of money on socially destructive activities.

 This is interesting and very telling from two different viewpoints. First, Krugman has limited the entire conversation to "markets" for systems of payments for medical care, the third-party system, yet there is an entire web of complex relations within medical care that he ignores. (He does claim that improvements (like the MRI device) are responsible for the high cost of health care, which would make medical care quite unique because capital in a market economy tends to allow more goods to be created with fewer resources, but since he others already have declared that medical care is "different," then capital in the medical field apparently is a liability, not an asset.)

Unfortunately, Krugman does not even address the efficacy of third-party payments themselves, yet the proliferation of third-party payments for anything is going to mean that an important connection in economic exchange is distorted. The role of third-party payments in the rise of medical costs hardly is controversial, but Krugman seems to accept that the system can function only if all payments come from third parties.

The second point is that Krugman implies that a government system would not deny care, as though the Law of Opportunity Cost applies only to private insurers. Yet, even Krugman himself has endorsed denial of care and, yes, "death panels" (his words) as a way to hold down costs. So, one supposes that government is not subject to opportunity cost, but if it is, government agents will act wisely and compassionately.

Thus, we are supposed to conclude that (1) medical care is different than any other good one might purchase, (2) opportunity cost applies only to private care or at least manifests itself less if government agents decide who is to receive care, and (3) since everyone already knows the production function and since government has the power to set prices, there is no economic calculation problem, which means that the system does not need profits and losses to guide its decision makers.

Is There a Role for Entrepreneurs in Medical Care?

In the MBA classes I teach, I emphasize the role of the entrepreneur, not simply as an individual, but also the role of entrepreneurship within the firm itself. I use a lot of material from the Austrians, including Peter Klein's new book, The Capitalist and the Entrepreneur: Essays on Organization and the Markets.

Klein reminds us that most of the mainstream economic literature long ago discarded the entrepreneur as either socially useless (or even harmful) or irrelevant in a world of "economic" analysis based upon production functions, "given" input prices, and probabilities. These things, many mainstream economists believe, have demystified economic analysis to the point where any semi-competent economist, along with bureaucrats from the Federal Trade Commission or the Department of Justice, can both see and create the "optimal" system of production.

The Soviets certainly believed the entrepreneur was nothing more than a parasite, and all private entrepreneurship (legally called "speculation") was outlawed, with execution as a penalty always on the table. Production functions were obvious and planners could find prices by reading the Wall Street Journal, so the system did not need entrepreneurs, and especially did not need profits, as socialism already had done away with profits, which were nothing more than what Marx said they were: an unjust expropriation of the compensation that belonged to the workers.

As the Soviet economic planners found out, however, this was not a formula for "rational production," but rather a prescription for utter chaos. The economy of the former U.S.S.R. was legendary for its shortages, its poor-quality products, bad food, and, yes, poor medical care. When the Soviet Union still existed, American defenders would agree that maybe the government was too repressive and, yes, its economy was not good.

However, they would add: "It has free healthcare." (Likewise, I remember when a Marxist who teaches economics at the University of Tennessee-Chattanooga claimed that Romania's economy under communist rule was superior to that of the western nations because "there is no unemployment there.")

One of those former Soviet planners, Yuri Maltsev, has written about what that "free" care was like for ordinary people:

Being a People’s Deputy in the Moscow region from 1987 to 1989, I received many complaints about criminal negligence, bribes taken by medical apparatchiks, drunken ambulance crews, and food poisoning in hospitals and child-care facilities. I recall the case of a fourteen-year-old girl from my district who died of acute nephritis in a Moscow hospital. She died because a doctor decided that it was better to save “precious” X-ray film (imported by the Soviets for hard currency) instead of double-checking his diagnosis. These X-rays would have disproven his diagnosis of neuropathic pain.

Instead, the doctor treated the teenager with a heat compress, which killed her almost instantly. There was no legal remedy for the girl’s parents and grandparents. By definition, a single-payer system cannot allow any such remedy. The girl’s grandparents could not cope with this loss and they both died within six months. The doctor received no official reprimand.

As one reads the tales of Soviet medical care, it is clear once again that socialism is a system in which the consumer plays no role. Whether it was doctors and medical personnel killing patients or forcing them to pay bribes for basic care, patient care was the lowest priority. Ironically, at least one prominent Democrat politician, following the SCOTUS decision on Obamacare, declared that a future step should be the unionization of doctors. One can be assured that if this is part of our medical future, actual care for individuals will be secondary to preserving the political players in the system, as doctors through their unions will receive even more political cover.

One of the characteristics of a socialist economy was the various "time warps" that it created. When the Berlin Wall fell in 1989 and East Germans soon began to drive their Wartburgs and Trabants over the formerly-forbidden border to West Germany, people found that there was little difference between the 1989 Wartburg and the 1948 make of the same car. During my visit to East Germany in 1982, I found that much of the country, from its infrastructure to its street lighting looked unchanged from the 1940s.

Why the time warp? In a word: entrepreneurship, or the lack, thereof. While a lot of economists tried to explain the difference between the East and West as being to to "superior technology" in the West, that really is no explanation at all. New technologies do not magically appear; entrepreneurs must find a way to apply technologies in a way that will appeal to both the needs and budgets of average people.

Economic entrepreneurship in the old communist bloc was a crime; furthermore, a bureaucratically-run economy was going to be resistant to change because governments are loathe to take any kinds of risks. Car manufacturers stayed with the "safe" production function. Bureaucrats rarely receive any rewards for being right when they take risks, but often are punished for making errors, unlike entrepreneurs, who receive profits when they make correct decisions about the future and losses when they are wrong.

In the West and Japan, however, auto manufacturers had at least a measure of private entrepreneurship, and the result was a better automobile, even in the face of massive government political and regulatory interference with the production process. (Yes, some companies were bailed out, and it is my belief the government should have simply let Chrysler and General Motors go out of business. Entrepreneurship, after all, works best with a profit and loss system.)

What both Krugman and Roberts claim is that the real problem with medical care is entrepreneurship, and once the entrepreneur is removed from the picture and government directs the resources within the system, all will be well. Yet, why should that be the case we see opposite results elsewhere?

In the end, the single-payer advocates claim that medical care is different, and is not subject to the laws of economics. That would be a first in all of human history: a scarce good that is not subject to the Law of Scarcity.

For all of the talk of "American Exceptionalism," the real exception in the United States historically has been that entrepreneurs have had great freedom here, and we as citizens and consumers have benefited mightily from their actions. For that matter, every medical device that has saved lives and every development of medical procedures that make once-impossible surgeries now easy and commonplace has come ultimately through entrepreneurship.

And what will happen if the government tries to outlaw medical entrepreneurship? The system ultimately will slowly deteriorate, medical innovation will come to a halt, and patients will find themselves at the bottom of the totem pole.

Another thing will be commonplace, too. We will see politically-connected people like Paul Krugman and Michael Moore either using their great wealth to receive medical treatment in other countries that are not as restrictive as the USA, or they will use their political connections to be bumped ahead of everyone else. Oh, and Krugman and Moore and others will continually be propagandists in telling us how good we have it now that we have state-run medical care.

Krugman and the New Moralizing

Paul Krugman loves to take on what he calls the "moralizing" crowd, at least when it comes to making economic policy choices. If someone objects to the Federal Reserve System inflating money so that it devalues the holdings of individuals -- a confiscation of their wealth -- then that person is engaging in what Krugman calls "moralizing," and that is bad.

However, when it comes to the Welfare State, Krugman suddenly turns into Jeremiah, excoriating the Israelites for not worshiping the God of Collectivism. In his column today, he repeats the leftist canard that in a free society, one is "free to die." (The other leftist slogan is that in a free society, one is "free to starve," which is why I guess people in North Korea are going hungry.)

I did not watch the Tea Party debate the other night and am not interested in pulling up the recordings, given I just am tuned out to hearing politicians yapping. However, there was a situation in which someone asked Ron Paul a hypothetical question about a 30-year-old man who had not purchased medical insurance, Krugman writes (always trying to put Paul in the worst possible light because, after all, Ron Paul cannot possibly be as decent a human being as is Paul Krugman):

Mr. Paul replied, “That’s what freedom is all about — taking your own risks.” Mr. Blitzer pressed him again, asking whether “society should just let him die.”

And the crowd erupted with cheers and shouts of “Yeah!”

The incident highlighted something that I don’t think most political commentators have fully absorbed: at this point, American politics is fundamentally about different moral visions.

Now, there are two things you should know about the Blitzer-Paul exchange. The first is that after the crowd weighed in, Mr. Paul basically tried to evade the question, asserting that warm-hearted doctors and charitable individuals would always make sure that people received the care they needed — or at least they would if they hadn’t been corrupted by the welfare state. Sorry, but that’s a fantasy. People who can’t afford essential medical care often fail to get it, and always have — and sometimes they die as a result.

Indeed, people can die from a lack of treatment, but, as Krugman notes in this interview, if who is to die is decided by government agents wearing white coats and repeating the mantra of "lower costs, lower costs," then we should "let them die." Furthermore, the notion that many people in the medical professions are motivated ONLY by money is a huge lie.

My grandfather, Dr. William Chisholm, served as a medical missionary in Korea before World War II, and he treated many, many people who never paid him a cent. Today, my cousin, David Morton, who is Dr. Chisholm's grandson, works in the hinterlands of Malawi treating patients who cannot pay him. (According to Krugman, those men are just fantasies. No doubt, they must have evil intentions, since they were and are motivated by their Christianity, and we already know what Krugman thinks of Christians.)

Furthermore, we have many doctors all over the world, not just in the USA, who will treat patients who do not compensate them. Yes, because medical care is scarce, ultimately someone needs to pay something, and often others are willing to pay, or some doctors at least are willing to essentially charge themselves in certain situations. Furthermore, Ron Paul is a doctor and is much closer to the medical scene than Krugman, yet here is Krugman lecturing the man about medical care and essentially calling him a liar. Yes, that is what Krugman is doing.

According to Krugman, ONLY the Welfare State can ensure the moral outcomes; anything else is immoral, and those who object to any aspect of the Welfare State are immoral monsters who just want to see others suffer and starve. Am I exaggerating? Read the column and you will see what I mean.

As for morality, Krugman says that it is a good thing for governments to destroy the assets of individuals through inflation (and to oppose such a thing, according to Krugman, is immoral, as those who oppose it do so only because they selfishly want other people to be out of work and to suffer), but when a man who has been a doctor speaks of compassion within his profession, well that man is an immoral liar.

So, I guess in Wonderland, people in a free society are "free to die," and in Wonderland, Krugman is free to lie.

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.?

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.)

Krugman on the "Money-Saving Death Panels"

I can tell that Paul Krugman is excited. FINALLY! The government is going to force real cost savings at what is supposedly at the end of life. See the video below and decide for yourself if Sarah Palin is the idiot (at least on this subject) that Krugman claims she is:



(Hat tip to Mike)

Say What? on the Debt

I have read bizarre stuff from Paul Krugman before -- heck, here is a guy who believes prosperity is created by the government printing press -- but I must admit this latest blog post of his comes close to being the most bizarre of all. First, and most important, he declares that the gargantuan public debt really is not much of a big deal.

Second, he wants us to take the word of the Obama administration on the budget numbers up to 2020. Yes, now that the profligate politicians he likes are in power, we are supposed to believe whatever the administration tells us. Right.

However, it gets better. After mentioning that other "independent sources are moderately more pessimistic" (they believe the federal deficit will be five or six percent of GDP instead of the Obama prediction of 3-4 percent), he writes this:

That’s not, in economic terms, a huge number. We could raise taxes that much and still be one of the lowest-tax nations in the advanced world. Or we could save a significant share of that total by not being totally prepared for the day when Soviet tanks sweep across the North German plain.

And it gets better:

The only reason to doubt our ability to get things under control a decade from now is politics: if we’re still deadlocked, if sane Republicans are cowed by the Tea Party, then sure, we can have a fiscal crisis. And longer term, we’ll be in a mess unless we get health care costs under control — which is exactly what we’re trying to do, in the face of cries about death panels.

Yeah, it is those dastardly tea-partiers that are going to cause a fiscal crisis. Why? Well, they oppose "healthcare reform," and everyone knows that a huge combination of new taxes, draconian regulations, mandates and subsidies are going to vastly cut medical costs and help revive the economy.

I will agree that the "War on Terror" has eaten a portion of our nation's production that is equal or greater than any set of costs associated with medical care, and there seems to be no end in sight. What is just as bizarre to me as Krugman's assertion that the Obama numbers are honest is the campaign of the Heritage Foundation, "Four Percent for Freedom," that claims we are not adventurous enough when it comes to military spending and wars abroad.

You see, it never has occurred to the people at Heritage that the financial ruin that has come about in large part because of the "War on Terror" and the vaunted "Ownership Society" initiative of the Bush administration (pushed by Heritage and the Cato Institute) which deteriorated into "let's put everyone into home ownership whether or not they can afford it." Because the Bush administration was profligate, it created a crisis that helped lead to the current political situation, and ultimately to, yes, the real ascension of Krugman to his current "superstar" status. By creating a fiscal crisis, the "conservatives" gave credibility to Krugman, who became well-known in large part because of his public criticism of the Bush administration.

So, we have few voices for fiscal sanity, anymore. On the one hand, Krugman claims that we are supposed to believe Obama's budget numbers as though they came from God, and the "conservatives" want even more war and military spending abroad. Neither side can come to grips with the fact that this government is broke, broke, broke.

Don't kid yourselves. We are on the same path as was Argentina in the mid-20th Century, when a rich and proud nation morphed into poverty and political chaos. Those "advanced" countries of Europe Krugman so praises are headed in the same direction, brought down by the cold hard reality that in order to have a high standard of living, a country must produce something other than paper money. It is unfortunate that the USA is being destroyed by a tag team of the Left and the Right, but here it is.

How DARE Anyone Protest This Bill!

In the days before the vote on the allegedly "historic" Obamacare bill in the House of Representatives, recalcitrant Democrats were receiving threats overt and covert from constituents, unions, and others. A number of them had to deal with obscenity-laden threats from Rahm Emmanuel, courtesy of the Obama White House.

However, such actions were not extremism. No, they were statesmanship, or at least in the Wonderland inhabited by the likes of Paul Krugman.

However, whatever rumors or even lies about the protests of those who were against this monstrosity of a bill are being told, Krugman is there to repeat them, and he does so again in his column today, "Going to Extreme."

Before taking on today's missive, I want to deal with a Big Lie that Krugman was helping to spread. Remember the supposed screaming of the "N-word" at black members of Congress last week? Krugman and all of the others in the media made hay of it. However, it turns out that the account was a fabrication, made up by a reporter from the McClatchy newspaper chain.

(In case you are not familiar with the leftist McClatchy chain, one of its newspapers, the News & Observer of Raleigh, North Carolina, started off the infamous Duke Lacrosse Hoax with a fabricated account written by a female reporter who now works for a Marxist publication. More than any other media outlet, the McClatchy chain was responsible for this patently-false hoax and subsequent attempted frame of three young men by the prosecution and police of Durham. That McClatchy would promote another Big Lie does not surprise me in the least.)

That it turns out that no one -- not one person -- has been able to pick up any of those supposed slurs on the numerous videos made of that moment. This was a fabrication, pure and simple, yet Krugman gleefully jumped on it because it was "proof" that anyone who opposed Obamacare is a racist.

Ironically, Krugman's employer put a correction in his "Fear Strikes Out" column because Krugman had falsely claimed that Newt Gingrich was saying that "civil rights" damaged the Democratic Party. So, Krugman himself is not above promoting fabrications when it suits him. (Of course, Keynesian economics is a fabrication, but that is a discussion for another time and post.)

So, in today's column, we read more of the same:

But back to the main theme. What has been really striking has been the eliminationist rhetoric of the G.O.P., coming not from some radical fringe but from the party’s leaders. John Boehner, the House minority leader, declared that the passage of health reform was “Armageddon.” The Republican National Committee put out a fund-raising appeal that included a picture of Nancy Pelosi, the speaker of the House, surrounded by flames, while the committee’s chairman declared that it was time to put Ms. Pelosi on “the firing line.” And Sarah Palin put out a map literally putting Democratic lawmakers in the cross hairs of a rifle sight.

All of this goes far beyond politics as usual. Democrats had a lot of harsh things to say about former President George W. Bush — but you’ll search in vain for anything comparably menacing, anything that even hinted at an appeal to violence, from members of Congress, let alone senior party officials.

So, we are back to the same partisan vitriol: We Democrats are nice people, those Republicans are a bunch of violent kooks. Now, to me, both parties are full of people who have advocated violence against Americans and much of the rest of the world, and currently are carrying out those threats at home and abroad.

Krugman then makes this astonishing claim:

Mr. Obama seems to have sincerely believed that he would face a different reception. And he made a real try at bipartisanship, nearly losing his chance at health reform by frittering away months in a vain attempt to get a few Republicans on board. At this point, however, it’s clear that any Democratic president will face total opposition from a Republican Party that is completely dominated by right-wing extremists.

For today’s G.O.P. is, fully and finally, the party of Ronald Reagan — not Reagan the pragmatic politician, who could and did strike deals with Democrats, but Reagan the antigovernment fanatic, who warned that Medicare would destroy American freedom. It’s a party that sees modest efforts to improve Americans’ economic and health security not merely as unwise, but as monstrous. It’s a party in which paranoid fantasies about the other side — Obama is a socialist, Democrats have totalitarian ambitions — are mainstream. And, as a result, it’s a party that fundamentally doesn’t accept anyone else’s right to govern.

Please. This is a president who made the hyper-partisan Emmanuel his chief of staff, and who made it clear that he had the votes, and he was going to do whatever he pleased. Obama told Republicans that if they were not going to go along with what he wanted, then it didn't matter, anyway. Furthermore, the Democrats quickly have turned these alleged "threats" of which Krugman speaks into fundraising opportunities, which always makes me a bit suspicious. That Krugman tries to paint a picture of a naive, trusting Obama who was stabbed in the back by those mean, nasty, vicious, racist Republicans is junk that at best is saved for the Daily Kos or Media Matters.

Paul Krugman represents the Eastern, secular, urban Democrat who absolutely cannot understand nor tolerate anything other than the culture in which he lives. Should anyone be different, well, that person really needs at best to pay taxes, and bend over and take whatever the Krugman-approved government gives him or her. Any opposition to his ideas can be motivated only by racism, and whatever "ism" he pulls out of his hat.

Only in Wonderland Will "Healthcare Reform" Reduce the Deficit

Paul Krugman is at it again, trying to convince us that this monstrosity of a bill is going to produce all sorts of financial "savings" for Americans, and he claims to have brought out the heavy intellectual artillery. Krugman pulls out a figure from that great economic soothsayer, Ezra Klein of the Washington Post which "proves" that revenues from this new bill will well-outstrip expenses:

Lest one be a doubter, the Center on Budget and Policy Priorities makes similar claims, and we know that the Left never is wrong on economic policy. However, before we sit back and cheer the good fortune we have before us (you know, "world-class" healthcare and those rich people will pay for all of it), perhaps some wise words from Robert Higgs, an economist whom I respect infinitely more than Krugman or Klein, might be in order:

What has this gargantuan statute wrought? To this question, there can be only one answer: Nobody knows.

I am being quite serious: no single human being knows ― no one can know ― what provisions the statute’s more than 2,000 pages contain. Even if someone had the power to read and remember everything in this massive legislative enactment, he would still harbor a multitude of uncertainties about: how the courts will interpret the law’s general provisions; how the various administrative agencies will flesh out the statute with new regulations; the precise way in which each provision will be implemented; how, when, and in what amounts funds will be made available for carrying out the law’s many stipulated actions; how much resistance the law will meet, both in the courts and among the public, and how these conflicts will be resolved; and countless other matters of critical importance to those directly and indirectly affected by the massive statute ― which is to say, virtually everybody in the United States and a considerable number of people elsewhere, as well.

Already, however, we can say a few things with certainty. One is that this statute, like any other of comparable size, amounts to a Christmas tree for politically favored interests. For months, maybe for years, people will be discovering little provisions tucked into the bill, each of which provides some sort of privilege, protection, subsidy, or other benefit to a particular firm, industry, profession, or other beneficiary. Anyone who has ever toiled through the pages of statutes of comparable length and complexity, as I have for a number of defense authorization and appropriation acts, knows that each such law comprises a host of special-interest provisions.

Higgs makes another point that is well-taken, for Krugman, Klein, and the other cheerleaders for this monstrosity are trying to tell us that a decade from now, no new expenses will be tacked onto this legislation. Right. Higgs says:

We also know that this statute will not be the end of the story of health-care politics in this country. It is, for the current phase, only the end of the beginning. The ink will scarcely be dry in the revised U.S. Code when political factions will undertake to alter or to overturn the provisions just enacted. Thus, within the act’s great expanse, hundreds of little sub-conflicts will rage, as competing interests struggle for control of the state’s coercive power in their area of contention. Politics, in general, is an endless struggle, and the politics of the federal government’s health-care intervention is no exception. Stay tuned.

Finally, because health-care-related economic activity is such a huge part of the overall economy, what happens in this sector will have significant consequences for the operation of other sectors. For example, when Obamacare turns out to be much more costly than the government has claimed it will be, the government’s demand for loanable funds will be greatly increased, with far-reaching effects on interest rates, investment spending, economic growth, and even the U.S. Treasury’s creditworthiness. It is not inconceivable that the burden of supporting this health-care monstrosity will prove to be the (load of) straw that breaks the back of the government camel in the credit markets, where the U.S. Treasury has long been able to borrow the greatest amounts at the lowest rates of interest because its bonds were considered virtually riskless. Indeed, that status as the lowest-risk borrower seems already to be approaching the breaking point, even before the new health-care legislation has taken effect. Implementation of this law can only worsen the Treasury’s plight.

I think that if credibility is an issue, the person with the most in this situation is Professor Higgs.

It Ain't a Joke, Paul

Paul Krugman trots out his "five-year plan" and tells us it really is a joke:

It turns out to be almost exactly five years since I began crusading for health reform. At the time, all the buzz was about privatizing Social Security, and many people still thought it would happen; meanwhile, I wrote that

serious health care reform isn’t on the table, and in the current political climate it probably can’t be. You see, the health care crisis is ideologically inconvenient.

And here we are: Social Security still stands, and health reform — imperfect, compromised, but real — has happened.

Update: The title of this post, with its evocation of the Soviet Union, was what is known in the trade as a “joke.”

Actually, the only "joke" is the false belief that Krugman and others are promoting that Congress has repealed the Law of Scarcity. Furthermore, don't forget that Lenin himself declared that government-provided medical care would be at the heart of the new communist utopia.

Krugman Strikes Out

I have come to expect wooly-headed partisanship from Paul Krugman instead of economic analysis, and that is one reason I started this blog. The other reason was that I want to have another source that attacks and exposes the Keynesian fallacies for what they are: dangerous nonsense.

Nonetheless, even Krugman has managed to go where few economists have gone before: into total partisan fantasyland. I figured he would be crowing in his Monday column, and I am correct. Krugman's utterings in the aftermath of the passage of the healthcare nationalization legislation are not worthy of anyone who has a doctorate from one of the most prestigious economics programs in the world. He has given talking points that I would expect to read on the Daily Kos or in one of the ubiquitous emails I receive from the Democratic Party.

Krugman has entitled his column, "Fear Strikes Out," but in reality, Krugman has struck out, demonstrating not only his outright partisanship, but also his dishonesty. Let me begin.

He begins the column with a long quote from President Obama. Now, I generally don't like to begin any of my articles with quotes from politicians unless I am taking the scalpel to their words, as we can figure that however lofty the rhetoric might be, there is an iron fist inside a velvet glove, and this is no exception.

However, after quoting Obama, he then turns to Newt Gingrich:

And on the other side, here’s what Newt Gingrich, the Republican former speaker of the House — a man celebrated by many in his party as an intellectual leader — had to say: If Democrats pass health reform, “They will have destroyed their party much as Lyndon Johnson shattered the Democratic Party for 40 years” by passing civil rights legislation.

Notice that "passing civil rights legislation" was not what Gingrich said. No, Krugman inserted those words to imply that anyone who opposed the legislation was a racist.

Now, I don't like to defend the loathsome Gingrich, and I don't forget that for all of his lofty "limited government" rhetoric, he was just another politician grabbing what he could from the till. However, one has to understand the tactics that Krugman is using, and they are absolutely despicable.

He points out that someone from the Tea Party protests called John Lewis the "N-word," which is "proof" that opposition to the medical care legislation was undergirded with racism. While I also condemn the use of such language, nonetheless, Krugman uses the incident in a way that promotes a non sequitur. Do you have difficulties with the legislation? Do you think that it is going to pile on trillions of dollars of unfunded liabilities on our present and future generations at a time when the government of this country is essentially bankrupt?

Well, if you believe that, or even think it, then you also are a racist. Lest you think I am exaggerating, read on:

Instead, I want you to consider the contrast: on one side, the closing argument was an appeal to our better angels, urging politicians to do what is right, even if it hurts their careers; on the other side, callous cynicism. Think about what it means to condemn health reform by comparing it to the Civil Rights Act. Who in modern America would say that L.B.J. did the wrong thing by pushing for racial equality? (Actually, we know who: the people at the Tea Party protest who hurled racial epithets at Democratic members of Congress on the eve of the vote.

However, what if you are someone who says that the Law of Scarcity was not repealed, no matter what Krugman says? Well, you, too, are a cynical racist. Why? The Congressional Budget Office has declared this legislation to be fiscally sound, and we know that the CBO always gets it right, and that it is "nonpartisan" and never affected by politics:

Yes, a few conservative policy intellectuals, after making a show of thinking hard about the issues, claimed to be disturbed by reform’s fiscal implications (but were strangely unmoved by the clean bill of fiscal health from the Congressional Budget Office) or to want stronger action on costs (even though this reform does more to tackle health care costs than any previous legislation). For the most part, however, opponents of reform didn’t even pretend to engage with the reality either of the existing health care system or of the moderate, centrist plan — very close in outline to the reform Mitt Romney introduced in Massachusetts — that Democrats were proposing.

Ah! We have proof! Mitt Romney pushed what Krugman claims is a similar plan in Massachusetts, and Romney is a Republican, so any opposition to the government's newest edict can only be made on the basis of racism! Don't you see the logic? It is all there!

Krugman, however, is not done. He finishes with this benediction:

This is, of course, a political victory for President Obama, and a triumph for Nancy Pelosi, the House speaker. But it is also a victory for America’s soul. In the end, a vicious, unprincipled fear offensive failed to block reform. This time, fear struck out.

Yes, if you think that legislation that essentially nationalizes medical care, promises price controls, has new provisions that will criminalize actions that once fell into the category of voluntary, peaceful trade, and imposes coercive measures along with empowering the Internal Revenue Service, then you are on the side of the demons. You are a vicious, lying racist who wants everyone to get sick and not have healthcare.

Am I exaggerating? Read the column and see for yourself. You cannot both take a hard look at the fiscal provisions of this legislation and ask questions about it, for if you do, then you are a vicious racist.

There is more in this column and I will take a future look at some other points he makes, but for now, I leave readers with this sobering thought: The 2008 Nobel laureate in economics has declared that questioning this legislation through the lens of the simple laws of economics is an act of racism.

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.

Krugman's Healthcare Howlers

There are times when Paul Krugman lets himself go, and then there are times when the inner political hack really takes over, and his column today represents one of those times. Keep in mind that the editorial page of the New York Times has long been a place where hackdom reigns (just as it does at the Washington Times or any other newspaper where the leadership aligns itself with a political party).

However, one must understand that when a political operative or a member of Congress or a party official makes a hardcore partisan statement, one always considers the source. In fact, we are willing to accept some of the flackdom that accompanies politics and even consider it to be a form of perverse entertainment.

When Krugman makes a statement, however, he is not simply a hired gun by the Democratic Party. No, he is making that statement by the authority of being Paul Krugman, Ph.D. from MIT, faculty member at prestigious Princeton, and, of course, the 2008 winner of the Nobel award in economics. Yet, his column today, for all its supposed appeal to the "authority" of the Congressional Budget Office, is nothing but hackdom that demonstrates not only his outright partisanship, but demonstrates a woeful lack of simple economic knowledge. In other words, I am saying the guy is a fraud. A fraud.

With that out of the way, let us go to the column. Here are his opening jabs:

...what was nonetheless revealing about the meeting was the fact that Republicans — who had weeks to prepare for this particular event, and have been campaigning against reform for a year — didn’t bother making a case that could withstand even minimal fact-checking.

It was obvious how things would go as soon as the first Republican speaker, Senator Lamar Alexander, delivered his remarks. He was presumably chosen because he’s folksy and likable and could make his party’s position sound reasonable. But right off the bat he delivered a whopper, asserting that under the Democratic plan, “for millions of Americans, premiums will go up.”

Wow. I guess you could say that he wasn’t technically lying, since the Congressional Budget Office analysis of the Senate Democrats’ plan does say that average payments for insurance would go up. But it also makes it clear that this would happen only because people would buy more and better coverage. The “price of a given amount of insurance coverage” would fall, not rise — and the actual cost to many Americans would fall sharply thanks to federal aid.

Before dealing with the particulars of this one, let me say that Krugman conveniently forgot to deal with the ultimate howler said at the meeting, a statement by Nancy Pelosi that does not even need fact-checking because it is idiotic on its face. Pelosi claimed that if the Democrats ram through this bill, that it will ultimately "create four millions jobs" and will "create 400,000 jobs" almost immediate.

Don't take my word for it. Click on the link and you will see Pelosi making the declaration. If anything, this bill will destroy wealth and ultimately the jobs that are needed to create wealth.

Now that Pelosi's rant is out of the way, let us go back to Krugman's statements. Indeed, let me zero in on this one: The “price of a given amount of insurance coverage” would fall, not rise — and the actual cost to many Americans would fall sharply thanks to federal aid.

You see, in Paul Krugman's world there exists no opportunity cost. That is right. Krugman is saying that if government subsidizes the payment for health insurance premiums, opportunity cost disappears! Given that in his book, The Return of Depression Economics, he claims that printing money during a recession creates what he calls a "free lunch," which is a way of saying that printing money actually creates new wealth.

I'm sorry, folks. When an economist denies the presence of opportunity cost, it is time to fold the tents and leave. Opportunity cost is the central building block of economic analysis. In fact, if there is no scarcity and no opportunity cost, there is no economics. So, to have an economist -- and a highly-decorated one at that -- declare that subsidies lower real costs it absolutely shocking. Krugman basically is telling readers that government -- or at least government run by the Democratic Party -- can perform magic by creating wealth out of nothing but printed money. This ain't econ, people, it is metaphysics.

Unfortunately, we have to keep in mind that there is no way that we can have the following things and STILL cut real medical costs:

1. Mandates for insurers,
2. Prohibitions on denying insurance for people with pre-existing conditions,
3. Massive subsidies to pay the premiums.

That is a prescription for forcing up real costs, and for those who really believe otherwise, I give you another American institution for which we have seen the same pattern in which third-party payments have forced up costs: higher education.

We have seen tuition and fees for U.S. colleges and universities, both public and private, rise faster than the Consumer Price Index for many years. Why? Much of the payment for college and graduate school is made either through debt (and many people today graduate from all levels of higher education with massive amounts of personal debt) or through direct government payments. Furthermore, government imposes a large number of expensive administrative mandates (Sound familiar?) on colleges and universities. And then we are shocked, SHOCKED that tuition and fees are soaring?

Assume that the government (1) required colleges and universities to admit all applicants, regardless of their academic records (and no place could discriminate, including Krugman's own Princeton University); (2) if someone could not afford the tuition and fees, the government would pay the balance or pay for all of it, and (3) all Americans would be required to go to college.

Does any reader think we would have anything but chaos? Yet, there is qualitatively no difference between my "modest proposal" above and what Krugman and the Democrats are pushing. None.

Now it is one thing to say that the Republicans, intellectually speaking, are running on empty. That is nothing new, and they have been low on gas for more than a decade. It is another things, however, then a Republican brings up an issue of opportunity cost and is called a liar by a Nobel-Prize-winning economist. At that point, Paul Krugman no longer is an economist; he is just another political operative.

Krugman's Logic Death Spiral

One of the fundamental tenets of economic logic is that the farther away one gets from the simple relationship of a consumer paying directly for a good, the more the economic calculation for such exchanges becomes muddled. Thus it is with health insurance.

Think of it; most of us receive insurance from our jobs. We pay a premium, our employer pays part of it, which goes to the insurer, and then the insurer pays the doctors, does the negotiations, sets the standards, etc. This is a recipe for permitting costs to get out of control.

One of the fundamental tenets of Austrian economic theory is that the factors of production gain their value from the value that consumers place upon the final product. (Carl Menger spends a lot of time on this point in the first two chapters of his ground-breaking 1871 classic, Principles of Economics.) It is not hard to see that the way health insurance today is structured, that it is a recipe for out-of-control costs.

Paul Krugman has been writing on health insurance and economics for many years, and from what I have been able to tell, his main points are as follows:

• Health insurers are greedy and raise premiums because they are greedy;
• Health insurers can only make money by denying coverage;
• Medical costs rise because doctors and insurers are greedy;
• Only government price controls and regulation can ensure that medical costs will be low and medical care will be abundant for everyone.

Now, if one sees some internatl contradictions in this whole scenario, well, that person is applying simple logic, something that is missing from most Krugman columns. However, instead of making accusations against Krugman, let him say things in his own words:

Sky-high rate increases make a powerful case for action. And they show, in particular, that we need comprehensive, guaranteed coverage — which is exactly what Democrats are trying to accomplish.

Here’s the story: About 800,000 people in California who buy insurance on the individual market — as opposed to getting it through their employers — are covered by Anthem Blue Cross, a WellPoint subsidiary. These are the people who were recently told to expect dramatic rate increases, in some cases as high as 39 percent.

Why the huge increase? It’s not profiteering, says WellPoint, which claims instead (without using the term) that it’s facing a classic insurance death spiral.

Bear in mind that private health insurance only works if insurers can sell policies to both sick and healthy customers. If too many healthy people decide that they’d rather take their chances and remain uninsured, the risk pool deteriorates, forcing insurers to raise premiums. This, in turn, leads more healthy people to drop coverage, worsening the risk pool even further, and so on.

Now, what WellPoint claims is that it has been forced to raise premiums because of “challenging economic times”: cash-strapped Californians have been dropping their policies or shifting into less-comprehensive plans. Those retaining coverage tend to be people with high current medical expenses. And the result, says the company, is a drastically worsening risk pool: in effect, a death spiral.

So the rate increases, WellPoint insists, aren’t its fault: “Other individual market insurers are facing the same dynamics and are being forced to take similar actions.” Indeed, a report released Thursday by the department of Health and Human Services shows that there have been steep actual or proposed increases in rates by a number of insurers.

In economics, we have another term for what is being described: adverse selection. That is a common problem with insurance, and there are no perfect solutions, since people either will become sick or have accidents or have their houses burned down. That is life. Furthermore, with insurance, any insurer that does not try to control its costs is going to go bankrupt. (The Great Chicago Fire of 1973 was a classic example of the Worst Case Scenario, as a number of insurance companies went under because they had so many claims.)

Now, at one level, Krugman is correct. If we are going to use health insurance as a payment plan for nearly ALL health-based activities, and if health insurance is going to be the gateway for most care, then those who don't have insurance are going to find it more difficult (but certainly not impossible) to receive medical care.

However, what does Krugman suggest? It is something akin to taking the "hair of the dog" when one has had too much to drink. His "hair of the dog" theory of health insurance goes like this: Health insurance is too expensive and is not readily available, so the cure is to have the government impose price controls and provide "insurance" itself, and then everyone will have abundant care.

I don't think so. If, as the Austrians note, the problem is one of economic calculation, throwing even more distance between the consumers and providers of medical care will not solve anything, but, rather, make the problem worse. Yet, that is precisely what Krugman is demanding:

What would work? By all means, let’s ban discrimination on the basis of medical history — but we also have to keep healthy people in the risk pool, which means requiring that people purchase insurance. This, in turn, requires substantial aid to lower-income Americans so that they can afford coverage.

And if you put all of that together, you end up with something very much like the health reform bills that have already passed both the House and the Senate.

What about claims that these bills would force Americans into the clutches of greedy insurance companies? Well, the main answer is stronger regulation; but it would also be a very good idea, politically as well as substantively, for the Senate to use reconciliation to put the public option back into its bill.

Let me translate. The "solution" is more coercion and government-induced price controls. I think that "solution" speaks for itself.