Obamacare – The COVID-19 Virus of U.S. Healthcare Insurance

It tricks its way in and infects the vital organs.

Obamacare promised to reduce the cost and improve the availability of health care services in the U.S. without reducing the quality, generally considered the world’s best. By traditional metrics, e.g., the health of the American public, the cost, and the share of national resources devoted to healthcare, Obamacare is a total bust. As with any government program targeted to a single metric, a higher percentage of the population has insurance, whatever the cost or coverage, but even that has been declining since the enforcement mechanism, a grossly excessive individual mandate, was eliminated.

Obamacare made some households feel more financially secure, others less so. But it’s an illusion from a broader perspective as federal, state, and local finances are virtually all unsustainable. The federal government spent about $1.5 trillion on health care in 2019 and states about $300 billion. Handing out stacks of newly printed $100 bills to assist households with medical bills would have been a much cheaper and simpler solution.

The current Rube Goldberg monstrosity reflects the attempt to achieve the universal coverage and uniform quality of national health systems while maintaining private medical services and private health insurers under the misleading banner of “insuring the uninsured.” Many analysts believed Obamacare was purposely designed as a Rube Goldberg contraption intended to end with a “bang,” paving the way for “single payer” or “Medicare for all” – the current progressive goal. But like virtually all failed government programs, Obamacare whimpers on.

To repeal and replace would admit the obvious. But the “single payer” and “Medicare for all” proposals aren’t an actuarial insurance fix, merely a progressive federal tax. Their perceived merit is eliminating insurance company administrative costs (and administration), profits and actuarial premiums with political premiums – payroll taxes that contribute to total Treasury tax revenue. Politicizing the premiums will further politicize provider payments, two steps toward nationalized healthcare, the likely goal of many proponents.

Socialized national healthcare may be preferable to it. But politicians deny and mis-represent the European national healthcare systems’ inferior medical performance and deny the totalitarian necessity even while issuing multiple mandates and threats under Obamacare. The original separation of the private and public healthcare systems in the U.S. – the original “public option” – is another, arguably better option.

The Winding Road to the Obamacare Dead End

In a competitive market economy health expenses would largely be paid from personal precautionary savings or medical insurance, the premiums sufficient to cover actuarial claims according to the “law of large numbers” for unpredictable claims, with insurance reserves for worse than predicted experience, e.g., due to a pandemic. All insurance requires a degree of “assurance” to mitigate avoidable claims, a “moral hazard that the insured will take greater risks.

The U.S. health insurance industry in the early twentieth century followed the path of the savings bank industry of the prior century. Individual not for profit (mutual) firms (Blue Cross and Blue Shield) started appearing during the Great Depression for employees (initially teachers). The big expansion came when during WW II, FDR, no stranger to fascist business methods, capped wages but not benefits creating a loophole for un-taxed employer health insurance benefits that persists today, an advantage over individual plans paid mostly with after tax income.

Health care needs of the poor were addressed by a variety of public, civic and religious institutions. During the first half of the 20th century, driven largely by public health concerns, municipal hospitals provided health services but with independent fee for service doctors, whereas housing policies followed the fascist Wehrmacht model, paying private developers and builders to construct public rental housing.

Public healthcare, like public housing, was definitely below average. But the World Health Organization (WHO) Constitution of 1946 declared “enjoyment of the highest attainable standard of health”—defined as “a state of complete physical, mental and social well-being and not merely the absence of disease or infirmity”—“is one of the fundamental rights of every human being,” reaffirmed in the 2020 Democratic Party Platform.

Similarly, in market economies housing structures are considered a capital investment financed with debt or equity, owned or rented. But the United Nations identifies adequate affordable housing and secure tenure as a “fundamental human right.”These assertions followed the destruction of WW II and rise of European “democratic socialism,” but were foreshadowed by FDR’s New Deal policies during the Great Depression and his Second Bill of Rights in 1944.

European national Healthcare systems reflected this uniformity, with one standard for all under Britain’s system, whereas the French system allowed about 10% of the population to opt for higher quality care with private insurance.

The U.S. went in the opposite direction in the 1950s and 1960s. Federal expenditures for housing and health services were increasingly directly subsidized with federal progressive taxation, less intrusive to the private sector than prior methods or European systems, albeit more so than subsidizing income directly. The advent of federal Medicaid and Medicare subsidized insurance led to the decline of public hospitals (as did the movie “One Flew Over the Cuckoo’s Nest.” ) But the Budget Act of 1974 making expenditures more transparent shifted lobbying efforts to less transparent tax subsidies and to regulation by the Administrative State.

So progressives targeted finance and insurance, where the subsidies are often opaque. The objective became achieving a socialist incidence of both cost and delivery of health services by subsidizing and manipulating the private insurance market. The problem with FDR’s freely granting of multiple “rights” including healthcare and housing during this “fireside chat” was that they were not his to dispense. Progressive “rights” are nothing more than meretricious socialist promises implemented with a totalitarian stick that violate the unalienable rights in America’s Declaration of Independence that are the cornerstone of a market system, the reason for multiple conflicting and confused Supreme Court decisions regarding Obamacare.

The Clinton Administration first proposed Hillarycare, the precursor to Obamacare, in 1993. When that failed, it turned to housing, where it was too successful. These latent New Deal viruses later turned deadly. Some three and a half years ago I argued that the two legislative centerpieces of the Obama Administration, the “Dodd-Frank Act” (the Wall Street Bank Bailout) and the “Affordable Care Act” (Obamacare) had the same fatal flaw. Politicians basically intervened in finance and insurance markets to provide equality of home ownership and medical care across all incomes without transparently paying the price. The effects spread like a deadly virus, distorting all the incentives, checks and balances that kept the private system afloat, replaced by universal one-size-fits-all mandates. The sub-prime lending debacle, like the Wehrmacht, lasted a decade, the current age of Obamacare (see Appendix).

The Building of a Rube Goldberg Contraption: Doubling Down on “Pre-Existing Distortions”

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COVID 19:The Value of Lives Saved versus the Cost of the Shutdown

Economics is all about trade offs. In response to COVID 19 politicians have made these decisions. Ironically, the politician most directly responsible for well over 10,000 deaths, New York Governor Andrew Cuomo, has argued that human life is’”priceless”’ But politicians always put lives at risk and imply a value. Had a national health care system existed as progressives like Gov Cuomo support, his defense may well have been that those deaths were justified as a matter of national health care policy.

The practical pending question is who should get the vaccine first. Ezekiel Emanuel, Obama Care designer and Biden COVID adviser, would give the over 65 group, which accounts for 80% of U.S. deaths, the lowest priority for the vaccine based on their age, whereas the CDC recommends the opposite based on risk.

Productivity Finances Health Care

In a purely private system, the population would save for lifetime health care expense directly or through insurance companies and decide to what extent they would do so. Individual “value of life” determinations would depend on income and wealth, both reflecting individual productivity. In a fully socialized system, all lives would be valued equally based on the country’s ability to pay, reflecting average national productivity, I.e., still subject to aggregate fiscal and actuarial constraints. Whereas about 10% of households in the French National Health System top it up with private insurance and care, the British NIH system operates more like the Soviet System, with the political elite leaving the country for private care beyond the standard.

Market based systems require a large life cycle accumulation of capital, for retirement and medical expenses, both back-ended and virtually indistinguishable. Socialized systems could – and arguably should – do the same.The U.S. has a hybrid (many would say Rube Goldberg) health care system, with Medicare, like Social Security, entirely pay-as-you-go with a faux Trust Fund. Social Security has relied on general tax revenues for over a decade and Medicare will as well in about four years.

National health care systems are funded entirely by progressive taxation. In the US. payroll taxes and progressive income taxes pay for about half of all insurance costs: Medicaid (20%) covers the poor, Medicare (15%) the elderly, Obama Care the working population (16%), the military (5%) and almost all the rest receive tax-subsidized employer insurance. Government also provides partial explicit unemployment insurance for lost productivity paid by taxing workers, with an occasional top-off in a pandemic.

Society benefits from the additional wealth accumulation of funded systems in the form of enhanced national productivity and economic growth, expanding the tax base. This allows the wealthy to opt out, but progressive politicians may find the increased longevity “unfair” and tax that wealth away, implicitly an advanced estate tax. Liquidating wealth has the same macro-consequence as increasing government debt to finance current health care, reducing future well being and potential tax revenues.

The Value of Life: to Whom?

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“Follow the Science” on the Corona Virus Pandemic

The Lincoln – Douglas Debate Rematch

As House speaker Nancy Pelosi publically alleged, the Republicans are “domestic enemies of the (deep) state.”

The central campaign issue of the 2020 U.S. Presidential election has been the response to the Corona Virus pandemic, which roughly follows along party lines. Based on the administrative state’s scientific “consensus” Democratic politicians generally argued for a nationwide lockdown of most “non-critical” economic activity as a civic responsibility of all citizens, enforced by state police powers. Republican politicians generally question the “consensus,” reject a one size fits all statist solution, and (mildly) complain about the violation of constitutionally protected individual rights.

In the 1858 Lincoln Douglas debates, Douglas, the incumbent Democratic Senator and Committee Chairman who had extended slavery into Kansas and Nebraska based on majoritarian democracy, i.e., the majority of white male voters, believed in the scientific theory that slaves were inferior and hence property. Lincoln argued that slaves had the same inalienable individual rights as all Americans that “government of, by and for the people” could not take away.

Douglas maintained his incumbency, but a few years later Lincoln became POTUS and in defense of his principles engaged in a Civil War that sacrificed a tenth of his population and devastated the country. The 13th, 14th and 15th Amendments protecting former slaves were passed before Southern Democrats rejoined the Union, further enhanced by the Civil Rights Acts of the early 1960s proposed by a Democratic President but passed only with large Republican support. While the demographics have since shifted dramatically – the Democratic Party is now 40% people of color – the philosophical divide remains unchanged. Contemporary Democrats still argue the state is sovereign, subject to a majority coalition, but governed by an administrative state.

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Saving American Democracy for the Zombie Apocalypse

Within weeks of the 2016 presidential election, the New York Times launched the campaign against President Elect Donald Trump as a racist autocratic Threat to Democracy, followed by the main stream media. Democratic candidate Joe Biden presented a ho hum globalist foreign policy as redressing President Trump’s threat to foreign democracies, conflated with his anti-capitalist domestic policy.

What does “Democracy” Mean to the Democratic Party?

European populations attracted to communism after the devastation of WW II were encouraged, sometimes with the subtle help of America’s CIA, to choose “social democracy,” i.e., a democratically elected central government that provided a welfare state financed by a market economy, over Soviet communism. America adopted social democracy in the 1960’s not out of desperation but capitalist material abundance.

Today after almost six decades of Great Society welfare over three quarters of all democrats are now “democratic socialists, i.e., they prefer socialism to market capitalism. The young party leaders demand “racial and social justice,” a political Jacobin revolution. Democratic officials have actively supported the demonstrators and rioters in the streets celebrating the Meltdown of Capitalism orchestrated by the Marxist Black Lives Matter and ANTIFA groups demanding a majoritarian “peoples’ democracy” like that of prior communist totalitarian regimes.

How Progressive Democrats Became Zombies

Since the takeover of Cornell University and others at gunpoint, most universities implemented black studied programs that indoctrinated the Charlottesville premise that America was born to slavery and American racist oppression never ended, causing the current income and wealth gap with whites. Thomas Sowell, one of the greatest economists of the past 60 years, who is black and was present at Cornell at the time, has a lifetime of scholarship exposing the fallacy of this premise.

The “Cold War” against Soviet communism lasted from 1945 to 1990. The Communist Party was outlawed in the United States in 1954 with progressive political support out of fear that voters could be too easily seduced by the meretricious promises of socialism – where income equality is achieved by impoverishing all but its leaders – without understanding the inherent totalitarianism that led to communist atrocities under Stalin and Mao, murders and deaths measured in the tens and hundreds of millions. The claim by democratic socialists of western democratic countries with a socialist economy, e.g., Sweden, is a myth. 

A century of progressive mis-education explains the zombies’ attack on capitalism. Primary education peddles soft socialism while universities are populated by “effete intellectual snobs,” the label given by VP Spiro Agnew to “national masochists” i.e., intellectuals who would bring national ruin, written a half century ago by the New York Times writer William Safire. American historians have generally been biased against market capitalism. The term “Robber Baron, first used by the New York Times in 1859 to describe Cornelius Vanderbilt, was popularized during the Depression by a disciple of socialist/progressive writer Charles Beard. America’s dark history has been made hopeless to many millenials through the lens of socialist sympathizer Howard Zinn and racist through the lens of the New York Times 2019 revisionist 1619 Project, with the Democratic Party re-writing its’ own racist past. Economists have been the most easily seduced by the attraction of state power, finding “market failures” at both the macro and micro level to justify their intervention. The Austrian economists Schumpeter and Hayek recognized socialism’s masochistic appeal to “intellectuals” who felt that they could run the world better than those chosen to do so.

After the Zombie Apocalypse: the Pigs Rule

Accusations of autocratic behavior by Trump are mostly in response to micro-aggressions of politically incorrect tweets and comments. Coups that overthrow representative democracy from the right generally start with the armed military taking over the media, the bureaucracy, the universities, the unions and all the other sources of political power. The idea that President Donald Trump could direct any of those sources of political power is ridiculous: the deep state has been trying to take him down since he took office. (If the accusations against his AG had any merit, the Democrats would have conducted a real hearing instead of a five hour show trial – a bit long by Stalin’s standards).

Democrats on the other hand are the Party of the deep state. It has been cultivating those sources of political power for a century, and now controls them with the “carrot and stick” method that was so successful for Mexico’s one party PRI for almost a century, suppressing free speech. It’s only a small additional step from social democrat to one-party democratic socialism.

Winning this election (fairly or not) provides the Democratic Party the opportunity for one party rule if their agenda faces any serious opposition. They have already discussed many tools at their disposal, e.g., eliminating the Electoral College, further lowering the voting age to 16, packing the Supreme Court (again), mail in ballots, etc. But Barack Obama’s demand at John Lewis’s recent funeral to end the filibuster and announce four new (almost assuredly democratic) senators from the new states of Puerto Rico and the District of “Columbia” (to be renamed of course) in the name of racial and social justice would likely be more than sufficient, maybe even just the threat.

What Good is the U.S. Constitution?

The founding fathers didn’t anticipate political parties, so it isn’t an obstacle to one-party rule. Franklin’s Republic of limited powers was replaced by an all-powerful administrative state rather like Hemingway’s character went bankrupt: “gradually, then suddenly.”

The first necessary condition was to amend the constitution. The end of the Civil War enabled the 13th, 14th and 15th Amendments extending voting rights to blacks. The 16th Amendments in 1909 enabling a federal income tax and the creation of the Federal Reserve System in 1912 provided the funding for President Woodrow Wilson’s entry into the European war and “make the world safe for democracy” the rationale. The direct election of Senators in the 17th Amendment of 1912 limited potential state opposition. All these changes shifted power to the federal government.

Second, the specific enumerated powers of the Constitution have been mooted through Supreme Court political nominations, legal manipulation and intimidation producing “creative” decisions subsequently protected by a convenient legal doctrine of stare desisis, i.e., protection of past progressive Court victories that enable meretricious populist promises. Supreme Court resistance to the New Deal withered in the wake of FDR’s failed attempt to pack the Supreme Court. The subsequent Great Society of the 1960’s, also designed by socialists and implemented by FDR’s protégé President LBJ, substituted federal government funding and decision making not only for states and localities, but for most of civic society and eventually the family.

Four quotes from H.L. Menken of about a century ago sum it up:

  1. Democracy is a pathetic belief in the collective wisdom of individual ignorance.
  2. Democracy is also a form of worship. It is the worship of jackals by jackasses.
  3. Democracy is the art and science of running the circus from the monkey cage.
  4. Democracy is the theory that the common people know what they want, and deserve to get it good and hard.

Kevin Villani

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Kevin Villani was chief economist at Freddie Mac from 1982 to 1985. He has held senior government positions, has been affiliated with nine universities, and served as CFO and director of several companies. He recently published Occupy Pennsylvania Avenue on how politicians and bureaucrats with no skin in the game caused the sub-prime lending bubble and systemic financial system failure.

Is the Biden Economic Plan on the Right Track?

It promises to improve economic well-being relative to current economic policy for average and particularly less well-off citizens now and in the future, and to do the same for citizens of other countries including all immigrants. Can it deliver?

The Mock Democratic Platform was released in February, the Biden-Sanders Unity Task Force a few weeks ago, and the draft 2020 Platform a few days ago. The economic plan is the most ambitious progressive anti-capitalist agenda at least since FDR’s New Deal and arguably in American history. It consistently proposes numerous government carrots and sticks to achieve its economic objectives, doubling down on the New Deal and Great Society methods.

Causes and Consequences of Reducing Capital and Labor Productivity

Potential national wealth is limited only by the amount of capital (national savings) and the incentive to maximize the productivity of capital (e.g., with new technology) and labor (through appropriate education and training). Politics often distorts individual incentives for the worse.

Politically Re-directed Investment

The US national savings rate hovered around 3% after turning negative in 2007-2009 and again now. The Biden economic plan for politically re-directing resources to, e.g., conservation, clean energy, transportation, manufacturing, infrastructure, affordable housing, etc. by subsidizing public and taxing private investment more has some merit. However, it may have problematic economic returns and the total cost is many multiples of total national savings.

Education and School Choice

Biden would limit the competition with public schools by restricting higher performing charter schools. Higher education would be made either affordable or free with reduced entrance requirements to compensate for a poor primary education, but higher education only contributes to individual and national wealth to the extent it improves productivity, e.g., with more STEM graduates.

Labor Market Intervention

By traditional measures, the country was fully employed prior to the Covid-19 epidemic, but the Biden plan calls for the “creation” of multiple millions of new high paying jobs, both in the nominally still private sector and the public sector. Pay would be raised by eliminating the right to work without being forced to join a union, something private sector unions have demanded since the passage of the Taft Hartley Act of 1947. But Biden plans to go beyond that, forcing all states to unionize public employees as well. For those that fall out of this broad union net, the federal minimum wage would start at $15/hour, superseding state laws. These are the tools that progressives historically used to keep blacks, other minorities and recent immigrants out of the labor force, and is is difficult to see how they would do otherwise this time around.

Trade Protection

As these politically inflated domestic labor costs will again be uncompetitive internationally the Biden plan opposes any trade deals, calling for manufactured goods to be sourced and stamped “made in America.” Consumer prices would have to rise commensurate with labor costs.

Immigration

Borders would be relatively open and immigrants incentivized to come both by the decline in export-related jobs and the benefits of the U.S. social welfare state. But they would be excluded from the formal job market by the union and minimum wage requirements once inside the U.S. border.

Taxation, Debt and Money Printing: The Limits of Expropriation

All senior mob leaders know two things well: 1. There is only so much extortion money to go around (gangster killings are usually over excessive greed), and 2, There are limits to how much you can extort without killing a business. At their peak in the 1980s the New York Mafia “owned” the labor unions that extorted from business, enabled by a symbiotic relationship of both with the Democratic Party. Sooner or later taxpayers and consumers always pay.

Debt and Taxes

State and local governments are in dire straits and blue states are technically insolvent, demanding a bailout. Federal funding has morphed the states into Soviet era oblasts with the federal government the funding source of first resort.

Current federal debt is $27 trillion, exceeding that of WW II as a percent of the economy, with over $200 trillion in additional contingent liabilities.. The current federal deficit for this fiscal year is over $3 trillion, to which the Democrat-proposed Heroes Act would add an additional $3 trillion. Candidate Biden has offered tiny constituent groups, e.g., caregivers, almost $1 trillion, large constituent groups such as the environmentalists’ Green New Deal could cost upwards of $100 trillion, with lots of constituent promises falling in between.

The Biden plan calls for reversing the Trump corporate tax cut that stimulated investment and exports. Taxing the “rich” will raise some revenue in the short run but reduce investment and growth in the longer run. Middle class taxes will follow, although he is committed to restoring the (blue) state and local income tax deduction for the relatively wealthy.

The Federal Reserve and Modern Monetary Theory

Having gone past the limit, a gangster may turn to counterfeiting as a last resort. The Federal Reserve is already “printing” enough money to be the primary buyer of Treasury debt and at the current pace would own it all in two years. Under the Modern Monetary Theory espoused by the Sanders campaign and now implicitly incorporated into the Biden economic plan, debts and deficits don’t matter so long as the Fed can print money to purchase them. The Biden plan adds “racial equity” to the Fed’s full employment and price stability goals to reduce differences in wages and unemployment.

Biden’s Plan is an Extortion Racket on the Left-Behind Track

Across time and space the evidence supports competitive market capitalism as the source of virtually all human economic progress. The Biden economic plan is essentially an extortion racket that fails to recognize its inherent limits, doubling down on the bad policies of the current Administration while eliminating the good, apparently because the Party’s octogenarian leaders either never learned the limits or have lost control to the young radical left. This plan so far exceeds the limits that even partial success could easily lead to hyper-inflation.

There is a sense that America can always turns things around if it gets derailed but the progressive perspective dominates America’s intellectual elite and media. Argentina was once on the capitalist fast track parallel to the U.S., but progressive President Juan Peron switched tracks in 1946, and Argentina has been left behind ever since.

Kevin Villani

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Kevin Villani was chief economist at Freddie Mac from 1982 to 1985. He has held senior government positions, has been affiliated with nine universities, and served as CFO and director of several companies. He recently published Occupy Pennsylvania Avenue on how politicians and bureaucrats with no skin in the game caused the sub-prime lending bubble and systemic financial system failure.