The Objective Standard Blog

Friday, August 28, 2009

The Dire Message of Mr. David Walker

Posted by John David Lewis at 3:13 pm

A person who is in the pay of the government is not always free to speak publicly about the most pressing issues he confronts. Administrators who are appointed to perform specific tasks are generally not free to contradict or even to challenge policies. They often cannot advocate for specific proposals, even if they think that such proposals will be needed to prevent catastrophe.

When Dr. Alan Carlin, a federal Environmental Protection Agency official, wrote a report in March, 2009 that criticized the EPA’s process of formulating regulations, the report was squashed both internally and publicly. Emails from EPA officials state that “a very negative impact on our office” made use of the report impossible. To protect the bureaucracy, Dr. Carlin was told to cease his criticisms.

Such officials must often make a choice: to remain silent and keep their jobs, or to resign and speak the truth. Faced with this dilemma, on March 12, 2008, David Walker chose to resign.

David Walker is the former Comptroller General of the United States, and former head of the Government Accountability Office. As the nation’s chief accountant he was appointed by President Clinton. He resigned near the end of George W. Bush’s second term. He had no authority to decide how a single penny of government funds should be collected or distributed. His job was to count those funds.

Mr. Walker’s enormous range of mind extends far beyond a single budget year. His long-range perspective allows him to project fiscal trends decades into the future, and to assess, through simulations, the impacts of policy decisions beyond their immediate effects. He truly understands the economic maxim, promoted by Henry Hazlitt, to look beyond the visible effects of any given policy and to consider its unseen consequences.

When Walker plotted these trends, and considered demographics among many other factors, what he found was “chilling.” If fundamental reforms are not begun now, he concluded, the United States will experience a financial and political collapse comparable to the fall of Rome.

In a presentation to the National Press Foundation, January 17, 2008, Mr. Walker brought forth the following facts and projections:

1. From 1966 to 2006, the percentage of federal funds spent on Medicare rose from 1% to 19%. This trend will grow exponentially as millions of “baby boomers” enter the entitlement pool.
2. For the same period, spending for mandated government commitments rose from 26% to 53% of the total budget. The budget is increasingly out of the control of government officials.
3. As of 2007, Medicare is running in arrears. In 2017 Social Security will be in deficit. By the year 2040, Medicare and Social Security alone will be running annual deficits of nearly 900 billion dollars.
4. Medicare spending from now until 2032 will be 235% of economic growth. By 2040, Medicare will be spending about 10% of the nation’s Gross Domestic Product annually, and the annual deficits of the United States will total some 20% of the total Gross Domestic Product.

The bottom line is this: mandated fiscal entitlements, projected into the future, are over 52,000 billion dollars. That will equal 90% of all household wealth in the U.S., and will place a burden of over 450 thousand dollars on every household in the land. This is almost ten times the present median household income level.

Mr. Walker concludes that “We face large and growing structural deficits largely due to known demographic trends and rising health care costs.” Further, “GAO’s simulations show that balancing the budget in 2040 could require actions as large as cutting total federal spending by 60 percent, or raising federal taxes to two times today’s level.”

To close the revenue gap through growth, the United States economy would need to expand in the double-digit range for the next seventy-five years. During the boom years of the 1990s, the economy grew at an average rate of 3.2%. Walker concludes, succinctly: “we cannot simply grow our way out of this problem.”

Health care entitlements constitute by far the largest single piece of this economic disaster. Those who think that creating thousands of billions of dollars in new government entitlements—in a health care bill that adds tens of millions of Americans to government programs—will do anything except hasten the coming bankruptcy are out of touch with reality.

Mr. Walker has taken his show on the road, in an attempt to educate Americans about the financial disaster they are creating. He was accompanied by both the Brookings Institute on the left, and the Heritage Foundation on the right. He stresses that this coming financial meltdown is known by everyone in Washington–but no one wants to acknowledge it. 

The Rasmussen poll shows that almost twice as many Americans think that cutting the deficit, rather than health care reform, should be the president’s top priority. Another poll shows that twice as many people think that the reform legislation will drive up costs than think it will lower costs. Perhaps these Americans grasp Mr. Walker’s point better than their elected representatives do.

A nation that violates the rights of its citizens cannot, in the long run, escape the consequences of its moral failure. When a nation with the unique strength of the United States does so systematically and over decades, the results must necessarily be catastrophic. The dire economic forecast of David Walker illustrates the connection between the moral and the practical. To regain our economic viability we must regain our moral viability.

Posted in: Business and Economics, Health Care, Individual Rights and Law

Thursday, August 20, 2009

Suppose Car Insurance Was Considered to Be a ‘Right’

Posted by John David Lewis at 11:42 pm

The major impetus behind the Democratic health care plans is not economic—it is moral. The claim that health care is a moral right has motivated enormous government coercions against the medical industry for nearly fifty years. But this moral claim has blinded people to the fact that huge price increases have necessarily followed the growth of the coercions.

To understand why, it is instructive to consider what would happen if car insurance were considered to be a “right” and the right was enforced by the government.

After the purchase of a home and the ordeal of major surgery, a car is most people’s biggest financial risk. One mistake—or one bad driver—can harm dozens of people. We need insurance, so why should it not be considered a right?

Car insurance is provided by companies that manage their investments in order to absorb financial losses. If insurance is considered to be a “right,” then someone must be force to provide it: either the companies directly, or the citizens through coercive taxation. Either way, the new “right” will be taken by physical force, that is wielded by the state against those who are bound, by law, to provide it.

To enforce this new “right,” the government must take money from some people and give it to others, without regard for the actual risk they pose. As huge amounts of money are pumped into insurance markets, demand increases, and prices rise. Government officials blame the companies, so they pass more controls, thus squeezing the supply. Prices rise further—the law of supply and demand cannot be thwarted.

People want to be protected from greedy repair shops and auto manufacturers. So the companies undergo a ten-year approval process costing millions of dollars for new products.  As lawsuits mount, courts enforce claims of strict liability against the companies—who pass the costs on. Price rises accelerate.

As people get used to a “right” to car insurance, they demand more coverage. Oil changes, brake jobs, torn seats and new tires become insurance matters. If insurance is a “right,” then no one should be deprived of these goods because he cannot pay for them. Every visit to the repair shop—big or small, routine or emergency—now involves an insurance claim. Prices escalate.

Male drivers under 25 pay more because they are statistically higher risks—but they resent this inequality. So they assert their “right” to insurance at the same price as older, wiser drivers. Companies spread the costs out across the board—and as good drivers face higher premiums, they demand more coverage. Prices shoot up further.

By this point, no one asks what a repair job will actually cost—they ask only about their “co-pay.” Customers have little incentive to keep costs down. Why bother to change the oil, if the insurance will give you a new engine?

As regulations increase, critics castigate companies who are unwilling to cover pre-existing conditions, such as a fender dented before the car was insured. As paperwork increases, repair shops that once had four mechanics and one secretary now have five secretaries, who spend their days filing claims. Prices rise further—until car insurance becomes a crushing burden.

By this point, the very idea that insurance should be used for catastrophic losses—not routine maintenance—has been lost. A chorus of calls for “reform” demands more government coercion to enforce the “right.” Anyone who suggests reducing the controls is shouted down by those who blame the “free market” for rising costs. By this point, most people have forgotten what a free market is—or that they had no “right” to insurance before someone else produced it—or that there was a time when insurance was not so costly.

This is fiction, of course—but it directly mirrors what has happened in health care. After World War II, companies began to offer employee health insurance because government controls forbid them from paying higher wages. Twenty years later, the “Great Society” lavished billions on programs—and as prices rose, regulation against the producers multiplied. HMOs and a host of other schemes were tried.

Now, bucking under the weight of economic distortions and regulations, the law of supply and demand is wreaking vengeance on those least able to pay. Medicare and Social Security are approaching insolvency, insurance companies are forbidden from selling across state lines or from offering innovative health savings accounts, and the solution offered is—even more programs, with a price tag so large that it that cannot be grasped by the human mind.

To expand government programs is not “reform.” It is an extension of sixty years of government interventions. The government now controls nearly fifty percent of all health care dollars—paid for by skyrocketing prices, taxes and borrowing. The correlation with history, and with the law of supply and demand, is precise and inescapable.

The primary cause of medical price increases is the government coercions. But the cause of the coercions is the idea that health care is a right. Until we understand that nothing is a “right” if others must be forced to provide it, we will continue to swallow the same poison, and we will reap even worse consequences in the future.

John David Lewis
Associate Professor
Philosophy, Politics and Economics Program
Duke University
Durham, NC 27708

Posted in: Business and Economics, Health Care, Individual Rights and Law

Monday, August 17, 2009

The Whole Foods Alternative to ObamaCare

Posted by Craig Biddle at 12:57 pm

John Mackey, CEO of Whole Foods, has an excellent article in the Wall Street Journal, in which he outlines several market-oriented changes that would substantially improve the quality of health care in America, multiply consumers’ options, and decrease health-care costs. Among other things, Mackey advocates the following:

• Remove the legal obstacles that slow the creation of high-deductible health insurance plans and health savings accounts (HSAs).
• Equalize the tax laws so that employer-provided health insurance and individually owned health insurance have the same tax benefits.
• Repeal all state laws which prevent insurance companies from competing across state lines.
• Repeal government mandates regarding what insurance companies must cover.
• Enact tort reform to end the ruinous lawsuits that force doctors to pay insurance costs of hundreds of thousands of dollars per year.

What these measures have in common is that they are steps toward respecting the rights of producers and consumers to act on their own judgment for their own sake. This—the recognition of individual rights—is the solution to any deficiencies in health care (as well as all other products and services). And Mr. Mackey is to be commended for grasping this fact and advocating such measures.

The leftists, of course, are spewing sound and fury about Mackey’s call to respect individual rights. They have even called for a boycott of Whole Foods. I will be shopping at Whole Foods more regularly in support of Mackey. I hope you will too.

Posted in: Business and Economics, Health Care, Individual Rights and Law