Ambivalence on Health Care

My wife and I had to take our baby girl to the emergency room because she had a high fever, some diarrhea, and we worried she’d get dehydrated. We were there a few hours, during which time she was checked on several times by very conscientious doctors, who spent a total of maybe 30 minutes of total person-hours on her care. The bill? Over $10,000. We have health insurance through my job, but we continue to get seemingly-random requests for co-payment. Every few months it seems they want another $50.

In places like Japan, Canada, and much of Europe, it is thought to be rather curious that Americans have such resistance to universal health insurance coverage. This incident provides a clue as to why it is so. For those lucky enough to have health insurance, the outcome we observe seems pointlessly mediocre. This is the land of customer service. Yet most experiences with health care delivery tend to involve long lines, ample doses of frustration, Byzantine rules and regulations, and a complete lack of alternatives. I thought markets were about free choices and clear prices. Asking how much a medical procedure costs is itself an exercise in futility. It depends on your coverage, because different deals have been made with different parties. Health insurance seems to have wrought a system that is complex and delivers rather poor overall results. There are over 100,000 deaths in American hospitals per year due to infections contracted in those hospitals; experts estimate two-thirds of those deaths could be wiped out by instituting simple procedures involving hygiene, such as hand-washing.

Unbelievable. Can you imagine any other business that is not affected by thousands of needless deaths? If one restaurant has an outbreak of E coli, it gets shut down. But not for hospitals.

I’m not an expert in health care. But it seems to me that the health insurance system effectively shields the industry from the competition in price and quality that every other business faces, to the detriment of consumers, and indeed, to all of us, because the care we get is overpriced and of poor quality. While many helpful people work in health care, people who genuinely care about helping people, the overall experience tends to be poor. When we were in the emergency room, were taken to an uncomfortable, poorly heated, poorly lit facility with little privacy. Nearby are several drug addicts in various stages of overdose. We would much prefer to see a doctor, as our situation is hardly a complex medical issue, just a simple matter that could be handled by a general practitioner, even a nurse, and an IV. But it’s pretty hard to see a doctor on the weekend, so one is left with the ER.

Where this all leaves me personally is with the same ambivalent attitude toward health insurance that I think is shared by many other Americans. I’m very thankful that the system is there for me if I were to have a truly catastrophic accident. But in almost every interaction I’ve had with it, I’ve been left with the feeling that there’s got to be a better way. While I don’t know exactly what that way is, it seems clear that the insurance system that we have isn’t working very well, even for those that have good insurance plans. So while I support Obama’s plan, and indeed it seems to be the outcome of a thoughtful analysis by a person who cares deeply about the country, I doubt that it will give us high-quality health care at an affordable price.

Stimulus Blues

I recently had the opportunity to take an unoffical poll of my economist colleagues a the City College of San Francisco, where I teach. One of the areas of very strong agreement was that the US dollar is the most serious risk to the US economy (there was one dissenter out of six economists). The other area of agreement was that the US needs another stimulus, on the order of $500 billion. Here, I was the lone dissenter. (Several of my colleagues didn’t feel another stimulus was politically feasible; I don’t think another stimulus is desirable economically.)

My colleagues are in good company; Paul Krugman, the 2008 Nobel prize-winner in economics has called for a second stimulus, as has Robert Reich and many others. A majority of economists were in favor of the first stimulus, though there were also some prominent dissenters. I think the views of economists tend to mesh with the conventional wisdom that the government has to do something.

The problem is that doing something is rarely a good substitute for doing the right thing.

Economics has largely scrapped the distinction between necessary and surplus value; necessary value is the portion of value that reproduces the capital and labor that went into producing a good or service, while surplus value is the additional value of the product above the cost of production. Without this key distinction, it becomes impossible to distinguish between economic activities which are productive (directly produce surplus value) and unproductive (those that do not); we’re left with only GDP numbers, without a notion of where the value flows came from.

To try to increase GDP without considering whether we’re increasing productive or unproductive economic activity is dangerous in an economy like the US, where unproductive activity has been steadily rising over the last 60 years. This rise has been financed by growing debt and capital inflows to the US economy, but as these flows slow, unproductive activity becomes less and less viable. To put it simply, the future of the US economy is in agriculture and manufacturing, not in finance, retail, or advertising. While there will always be a place for finance and other unproductive activities in the economy, it must be recalled that government is also an unproductive activity. As government spending increases, it absorbs a greater portion of the economy’s total surplus, at the very moment when that surplus is most needed to restructure, innovate, and re-invest. That is a recipe for a lingering malaise, such as what Japan experienced in the 1990s.

This is the time for government to cut back, do less and spend less, to balance the budget, and to trim taxes. In short, the government should take the advice given to a man in a small pond, thrashing about in an effort to make the muddy water clear:

Be still; it will happen best on its own.

The IMF Unravels the Global Monetary Order

On August 28^th, the International Monetary Fund quietly made history.

The IMF was a product of the Bretton Woods summit of economists that created the post-war global monetary order of the same name. The IMF was envisioned as a global central bank, that would act as a lender of last resort to countries facing balance-of-payments crises. The IMF has traditionally lent by raising funds among the wealthy nations, but in 1969 it created a special kind of currency, called the Special Drawing Right. SDRs aren’t used as a means of payment anywhere in the world; SDRs are used as an accounting device between countries for international settlements. Perhaps SDRs were created in the hope that one day the IMF may be able to issue its own fiat currency, a step toward a global ‘super-currency’. If so, that day has arrived.

The IMF announced on August 28^th that it would create $283 bil worth of SDRs, and distribute them to member countries. I know of no other instance of fiat currency being issued by a non-governmental organization that has no economy behind it. Countries can exchange their SDRs for one of the four hard currencies that underlie the SDR’s value (the US dollar, the pound sterling, the euro, and the yen). The US will receive one-sixth of the new SDRs, worth about $47 bil. Small change next to the magnitude of the deficits, but every billion helps.

What’s the game here? The US desperately needs to fill the hole caused by continuing trade and budget deficits and is increasingly sensitive to the criticism (made by many world leaders and central bankers) that it plans to do so by printing dollars. Could this be a sneaky move where the US receives the benefit of free money but sticks the IMF with the bill? It won’t work, of course, as global markets will simply respond by increasing prices. Increasing the money supply without increasing the supply of goods will always create inflation.

The global recession was caused by reckless money creation, which inflated the value of assets from stocks to commodities to real estate, while encouraging astounding degrees of leverage. The financial house of cards was simply not built to last, and pumping more fake money into the deflating credit bubble won’t work. Debt leverage isn’t available like it was in the past, and even if it were, a more important illusion has been punctured, namely that all this risk was essentially free. Risk always comes with a price tag, and the sooner that price is accurate, the better for the global economy.

Important Article on the Global Monetary Order

Take a minute and read this important article by Paul Nathan on the changing role of the IMF's fake currency, the SDR, or special drawing rights.

I'll have more to say on this article shortly.