More Economics

Robert Samuelson has another interesting and prescient column up today. In it, he compares the welfare state that is General Motors with the welfare state that is the United States. It is widely known that GM pays retirement benefits that are entirely unsustainable because

1) There are more GM retirees than current employees,
2) The unions were able to extract ever-increasing benefits because of bottlenecks in the manufacturing process,
3) The political interests of Democrats aligned with those of unions to bolster their untenable position, and
4) The MSM has long been a sop to unions and Leftist causes generally.

Those are my reasons. Samuelson offers some history that is, he posits, likely prologue to the welfare benefits promised by government.

In contracts with the United Auto Workers, GM promised high wages, lifetime employment, generous pensions and comprehensive health insurance. All this is ancient history: New workers get skimpier benefits.
As metaphor, GM's bankruptcy marks the passage of this model. Companies still provide welfare benefits to attract and retain skilled workers. But these shelters against insecurity are growing flimsier. Career jobs remain, but lifetime job guarantees -- whether formal or informal -- are gone.

To anybody who hasn't entered dementia or has learned to read, the connection is obvious. America will someday soon not be able to pay the benefits it has promised to its workers. Social Security, Medicare, Medicaid, SCHIP, WIC and a whole raft of other benefits are unsustainable. Eventually those benefits will have to be cut, probably in some ad hoc way that spreads the political pain across the spectrum, or collapse will be upon us. Young people everywhere are aware that this pain is coming. We know that we'll be asked to pay the freight for our parents without the promise of future benefits.

But unlike the GM example in which younger workers do not get the benefits promised the oldsters -- but for which they suffer no immediate detriment -- the federal example depends on the votes of all voting blocs. Eventually the younger workers will vote to cut the benefits of retirees because that will mean short-term benefits in the form of lower taxes or greater future benefits. The idea that middle aged workers looking toward their own retirement while funding current retirees and their own children's lifestyles will continue to passively accept what may come from their political betters is absurd. It will not stand. So unlike GM, which had the option of bankruptcy, America will not (I think.) allow oldsters to keep their benefits while youngsters agree to less.

Exit Questions:
Democrats and the MSM have perpetrated the fraud of the current system upon us. Will they be able to blame Republicans for the disaster that is coming? And will Republicans be stupid enough to let them?

More on Health Care

I don't want this to be a health care blog. Instead I want it to focus on economics and the law. Unfortunately those clamoring for national health insurance are economically illiterate so I must take many of them to task.

Robert J. Samuelson is not one of those economic illiterates. He makes the case quite nicely in his Washington Post column today.

The central cause of runaway health spending is clear. ... The... system encourages doctors and hospitals to provide more services -- and patients to expect them.

That sums the problem nicely. But I had to use ellipses to drive the point home. And what was written in between makes a mockery of the central point.

You see, the problem is that patients are disconnected to the cost of medical care. That is not true with other forms of insurance. If you drive your car recklessly, you will find your premiums increase until the cost of driving poorly is outweighed by the price. The costs are internalized. The same argument is true for medical malpractice insurance. Doctors who are sued a lot pay a ton in med/mal insurance and this induces those doctors either

1) not to get sued or
2) to quit medicine

Either option is economically driven and both benefit society.

But that's where Samuelson gets off the rails, seemingly. Look at this next little bit:

Unfortunately, what pleases providers and patients individually hurts the nation as a whole.

This assumes the answer is that one person must accept the costs of another person's medical treatment. If the costs were not socialized "the nation as a whole" wouldn't give a wet fart about the cost of medical care. If the costs were internalized by the individual (as they are by those without medical insurance, btw) then patients would be more circumspect in the care they received.

To sum, if there is socialized medical insurance everybody will fall prey to the tragedy of the commons. And there is no escaping that truth. Samuelson gets it correct but it takes him until the third-to-last paragraph to state the case plainly.

The one certain consequence of expanding insurance coverage is that it would raise spending. When people have insurance, they use more health services. That's one reason Obama's campaign proposal was estimated to cost $1.2 trillion over a decade (the other reason is that the federal government would pick up some costs now paid by others). Indeed, the higher demand for health care might raise costs across the board, increasing both government spending and private premiums.

The costs of medicine have increased dramatically. This is because of the disconnect between the cost of care and the cost at the point of delivery to the individual of receiving that care. Any solution will realign the incentives of the individual. And any attempt at socialization will fail as it must. Always. And in every case.