Friday, November 12, 2010
Monday, November 8, 2010
More generally , deficits only matter in the context of growth - a 2% deficit is a big deal with 0% growth and it's minor with 5% growth. You don't have to believe that the Republicans are fiscally responsible from a spending perspective if you believe they're more pro growth. A low-tax driven deficit is better than a high-spending driven deficit because low taxes recover part of the losses through growth (and from an overall economy perspective are a positive) whereas high-spending doesn't, really. It's amazing how many economic and distributional things don't matter when you grow because the problems just take care of themselves. This is great in theory, but when you find out things like "the estate tax is a massive growth killer" or "high income taxes and high poverty transfer payments kill growth", that's where the rubber really meets the road. Growth isn't usually free.
Wednesday, November 3, 2010
forward. I think this is a discussion not enough people question.
Most people think that curbing healthcare costs is an important part
of maintaining long-term economic growth. I'll revisit this thesis,
but for now, let's assume it's true.
The complication is that this is a levels vs changes argument. US
healthcare costs are higher per capita than you'd expect given GDP per
capita, due to a number of structural issues with health insurance and
hospitals and the fact that we subsidize innovation for the rest of
the world - these are all important things, and they all affect the
LEVEL of US healthcare spending as a percentage of GDP.
However, if you told us that the level of US healthcare spending as a
percentage of GDP would remain constant, it would not be nearly so
concerning. The part everyone worries about is if healthcare costs
explode upwards. If you spend 5000 dollars a year on healthcare,
growing at 10% year, but you can eliminate 20% of the costs, you may
only spend 4000 a year next year, but youre going to be spending 4400
(or 4500, depending on whether the growth parts slow down or not) next
year, and 4840 or 4950 the year after that, etc. It's still going to
keep growing for a long time. You've delayed the economic problem for
a few years but certainly you haven't fixed it.
This means that if you're focusing on healthcare as a long term
economic driver, your policies need to directly affect GROWTH. To an
extent, the Obama administration superficially understands this (they
talk about "bending the cost curve") but no parts of their policy
really do. Instead, most of it focuses on LEVELS. The social justice
stuff - preexisting conditions, dropped coverage, etc - is all level
based. They'll either increase or decrease costs, but they're not
touching the growth rate. (I'll note that although people argue about
whether they'll drive the levels up or down, I find many of these
arguments disingenuous - they will pretty clearly drive the levels UP,
because we're treating more things, and emergency room efficiency and
all that is somewhat secondary, but the driving the levels up in the
name of treating more people is not necessarily a negative thing.
People just don't like the idea that they propose a tradeoff, so
supporters argue it'll drive costs down)
All the "inefficiencies" stuff also explains a LEVEL - the increased
cost of paperwork from dealing with insurance companies, the
malpractice suits, the various "too many procedures" and "badly
incentivized" and "badly organized hospital" arguments - all aim at
the LEVEL (either as a dollar amount or, more typically, as a
percentage of overall spending). These explain why the US spends more
per capita. Some of these are very valid targets for change - some of
it is, in fact, waste (and some of it is foreign freeriding, which
should also end). But while all of them are important (that money can
be spent elsewhere, we care about people being healthy, we care about
incentivizing doctors to want to be doctors and to do a good job),
none of them affect the "long term economic outlook" the way they have
been disingenuously claimed as doing.
Healthcare GROWTH is a different animal - it's fundamentally an
innovational thing. The levels are different, but every country's
healthcare costs seem to be growing at the same rate - other countries
perhaps lagged slightly, because we get innovations first, but
generally speaking, growth has been a world constant. Doctors don't
increase the rate of procedures they do - they just do too many by the
same % every year. Other than innovation, it's hard to come up with
good answers to why healthcare costs are growing - arguably, it's a
factor of fewer and fewer doctors for more and more people, but for
that to be true somebody has to pocket the surplus - and insurance
companies aren't that profitable (certainly no more than they used to
be), doctors are paid significantly less in real terms than they used
to be, and hospitals are in worse shape than they used to be. Unless
there's a secret dollar sink somewhere, the supply/demand argument
isn't a great one either (though letting supply grow faster is a way
to offset other growth factors - like innovation).
Thus, you can't argue that you're saving the future economy with a
healthcare bill if you're not addressing innovation.
Of course, the problem is that you don't WANT to curtail innovation.
Dying is cheap, cures are expensive, and I'm willing to pay a LOT more
to not die. From one perspective, as the economy grows, we should be
devoting a greater and greater percentage to medical care - buying a
third tv just gives me my marginal utility from a third TV for the
life of the TV, whereas buying an extra day of my life gives me one
day's worth of marginal utility from ALL THE THINGS I'VE ALREADY
BOUGHT that I still own. As we get richer and the marginal utility
from additional TVs goes down (and the things I buy get more durable),
the extra days of my life are more relatively attractive. This means
that healthcare innovation is NOT an "economy anchor" in the future -
it's an economic allocation. I've seen a paper that says that
allocation is at least double what we have now, in equilibrium.
Now, one very good thing to look at would be innovation from a
cost-effectiveness perspective as well as from a scientific
advancement perspective - the innovation we get is largely "cure this
disease better than any treatments we've had so far", because that's
the way the FDA operates, that's the way imaging operates, that's the
way devices operate. So you could slow growth by changing FDA rules
and changing other medical rules so that approved devices, drugs and
techniques can EITHER a) cure this ailment better than any treatment
we've had so far OR b) cure this ailment at the same level than
treatments we already have in an identifiable set or subset of
patients for a much lower cost. Innovation can still go up - we can
cure new things - but we also "innovate" cheaper products.
The problem with all of these things is that our government is not set
up to deal with a greater societal allocation towards healthcare or
towards caring about cheaper innovations. Centralized healthcare
requires a lot of tax revenue, and our tax system is notoriously
inefficient from an incentive level.
Understanding all of that, an economically viable long-term healthcare
plan needs to instead raise the money in a way that doesn't
disincentivize growth and doesn't devastate the government fiscally.
I've posted before on what I think a reasonable plan is, but it would
have to be something like this:
- we pay $5000 (for example - a constant amount) to every citizen to
buy a reasonably basic insurance plan on a private market
- anyone can spend more than that if they want
- if people don't select an insurance plan, they are put into a
default plan selected by an independent grading organization - so the
default is based on an assessment of quality
- no preexisting conditions or dropped coverage
- a cap on the number of people insured by one healthcare plan
(monopoly prevention so innovation isn't crushed)
- a reward for insurance companies that hit the cap (for example,
split them in 2, but before that, give them a very large bonus payment
to compensate shareholders and management for doing a really, really
good job making their insurance plans attractive to people)
- Federal funding to hospitals depends on how their doctors are paid -
a lot of very in-depth studies would have to look at how doctors
should be paid. This may involve changing how insurance companies pay
hospitals - for "time spend caring for the patient" instead of for
procedures, or something ridiculous like that - in fact it'd almost
certainly have to be a hybrid, because any individual metric you pay
them on is abusable via incentives.
-reform of medical approval agencies to additionally incorporate cost
as a metric of "improvement" when evaluating a drug or imaging
procedure or technique
I have others, but this is the core. For more, feel free to peruse my
other healthcare posts, or leave a comment and I'll answer it.
Right there, you have a system which doesn't require intelligent
allocation by the government, it doesn't limit healthcare coverage (an
individual choice), and it's SCALABLE - plans compete to eliminate
waste (level), the amount you pay out can just increase by inflation
every year, it doesn't bankrupt the government or incentivize crappy
bureaucracy, nobody gets too much market power, innovation isn't
harmed, etc - you've taken out the levels argument, but you've also
left room for innovation to be cheap and growth to be as effective as
possible. You moderate growth and definitely get more bang for the
buck in a manner that increases over time.
That's a plan that is a) sustainable for the long term, no matter what
our increased healthcare allocation is, b) addresses some of the
levels inefficiencies, c) adds social justice to the equation, and b)
can actually bend the cost curve where it can be done without
affecting healthcare quality.
The plan we got looks NOTHING like that, and has none of the good
features except the social justice ones and arguably (people fight a
lot, I tend to think it doesn't include) the inefficiency levels
Thus, this whole healthcare bill was a masked version of social
justice legislation, anyway... and given the costs added to the
system, it's a fundamentally anti-economy plan, both in the long run
and the short run, because you're introducing uncertainty, spending a
lot more and not fixing the structural impediments to scaled-up
allocation. Also, the availability and likely the quality of
healthcare for people who already had healthcare just got way worse,
which never had to happen.
That's why I get so frustrated with these discussions, especially when
people start screwing up the social justice stuff with the economics
part. People don't like black and white - if they like the social
justice aspect of the bill, they can't disagree with its economic
implications, that would be inconsistent! (That was sarcasm, if it
wasn't clear). The sad part is that the social justice stuff is
important, but ironically, it's the easy part to understand. It's easy
to figure out you want to give everyone healthcare, it's easy to
figure out you want to get rid of preexisting conditions or dropped
coverage. The hard part is figuring out an economically sound way to
shift healthcare to incorporate all of that, and when you start with
social justice you NEVER get the right way because you build a crappy
system around it.
This raises concerns for me - as an investor and a citizen - about the
ability of the current administration to deal with the mandate it got
yesterday. If Obama (and the Democrats, but Obama, for now) thought he
was addressing the long term economy, it means he has trouble thinking
about the economy. If he thought he was addressing social justice
issues and decided to frame it as an economic bill, then it makes
perfect sense, but it means he's ideological enough to pay no
attention to his timing, which was the worst possible timing - also
not a great indicator of economic prowess. Maybe he's learning on the
job and he'll do better moving forward - honest to heaven I hope so -
but this pattern has played out in a number of other areas as well
(the stimulus, the budget, large swaths of financial reform/consumer
"protection", etc) - so I'm concerned that maybe he's not.
I'll leave this with a more general point about people's
interpretations of healthcare's size as a portion of the economy.
Saying healthcare is "too big a percentage of the economy" strikes me
as a very, very dangerous form of social engineering. You can't "fix
the economy" by plotting its path - to an extent, in our society, you
can only lay the groundwork. I'll drop a factoid: If you had to guess
the single biggest economic driver since 1990, what would you guess?
Most people say "the internet" or "computers", some others will say
"housing" or "healthcare", but the actual answer is kind of shocking:
According to a number of papers (you can Google them, I forget
authors), it's Wal-Mart. Wal-Mart has made everything so much cheaper
for Americans, creating so much new disposable income, that studies
have credited it with a stunning 15% of GDP growth.
If you asked anyone in 1990, they would not have predicted Wal-Mart.
Again, I use this as evidence that social overengineering to promote
the "economy of the future" is doomed to fail because people just
don't know what the economy of the future is going to look like. This
goes for me as well - I have no overarching theory on whether things
will get better fast or get better slowly. I do have opinions on
certain pieces (I think China's in a bubble, and I get the sense we're
underbuilding housing, even given the massive foreclosure backlog) and
I do have directional opinions (whatever was going to happen to the
economy, I am pretty sure that the healthcare bill made it worse, and
I'm pretty sure the stimulus helped far less than its dollar amount
That said, whether or not policy can really drive growth (I withhold
opinion), creating an ecosystem that can PERMIT growth is important
and is something policy can affect.
From this perspective, I'm dubious as to how healthcare reform
affected the ecosystem.