An Analysis of the Health Care Summit

I managed to arrange my day so as to be able to view the entirety of the Feb. 25 Health Care Summit attended by members of the House and Senate in WA D.C.

My feeling is that it was a valuable event as the Republicans were able to speak nearly 30% of the air time...more than I would have guessed they would be allowed.

It was the first time the opposition was allowed to discuss the issues involved outside of floor debate, and more importantly, it was the first time any discussion was held open to the public...you and I. For once, legislation was discussed the way it should be...with an audience of employers looking over law-makers' shoulders.

The discussion, however, placed a great deal of weight on a handful of "myths" that surround the issues involved. I thought that some clarity around these myths might help focus the argument and help keep our representatives on the right track. Feel free to scold any of your employees (congressional members) who use one or more of these.

Myth Number One:

Like an old piece of shoe-leather, this myth has hung around for nearly a century, or longer, thanks to constant media repetition of the myth, and the sadly small number of people who actually study Economics or pay attention in class when they do. It is the myth that governments can actually "create" jobs.

To bolster this myth, officials usually refer to nations during times of war. The fact that near 100% employment can be reached during wartime is due to complex issues coming together, not the least of which is that millions of citizens are suddenly "employed" at low wages to fill the trenches, and others are hired with borrowed cash to supply them with weapons and ammo. The economic "boost" of wartime is normally short-lived, as it's heavy on credit, and nations at war too long are often broken completely by economic reality even before being broken militarily. Japan and Germany were prime examples.

In reality, government initially bolsters economic progress by supplying a basic infrastructure that makes a safe business climate possible. Maintaining a national defense, a legal system of laws and courts, law enforcement, and basic public safety measures ensures people can put their efforts into creating products instead of fighting off outlaw bands. All economists agree on this issue.

Most all economists also agree that there is a point of negative return, where collecting money from the private sector and giving it to government begins costing more jobs than the value created. They also agree that large industrial nations such as the US long ago passed the point of negative return.

The current "Stimulus" tax package, the government tells us, is "creating jobs," but the cost per job is now over $260,000. The cost of the worker employed is about one-third of that. At this time, private companies have to layoff three workers to pay for the government hiring one. This is not "creating" jobs...it is a net loss of jobs.

Of course, some of the excess monies are actually paying current government workers...that is the argument...but they were already being paid by other tax revenues so that argument doesn't make much sense. The "black hole" into which money seems to disappear and never return is said to be due to "bureaucratic friction." Whatever one calls it...there has never been an instance in history when taxation of the private sector has resulted in a net job gain. Never! In the long run taxation reduces employment and production...it's simple math.

Part of the reason this myth survives is you can always find an economist, somewhere, who disagrees with the basic premise. You may have to look long and hard, but believe me, government folks have found those few and have put them on the payroll in economic development agencies and in academia. That handful of "rebels" against historical reality will always find a voice on media talk shows and in academic conferences. The 99% of economists who hold to reality are back stage and will rarely get to the podium.

Relation to the Health Care Debate:

Those who keep telling us that the "reform" bill will increase health care coverage are ignoring that coverage is a service and is performed by professionals. This bill greatly taxes those professionals, and those who support them, and will inevitably reduce the numbers who will remain working. This has happened elsewhere and is a proven fact. With health care provider numbers down, you cannot increase services...kind of a "duh" statement I know, but a reality being ignored for convenience sake. The bill is a massive tax bill...and could cost millions of jobs lost before it's over.

Myth Number Two:

The Canadian system has worked just fine...look how "happy" Canadians are with their socialized health care.

First of all...only some Canadians are happy with their system, and tens of thousands come to the US each year for care. Oddly, US citizens are not flooding north for the same. The population of Canada is about 12% of the US population, and they use fees from extractive resources to help pay for government services. The US can't do that...and copying the Canadian model would break the US in short order. A similar situation exists in small countries like Norway and Sweden. The US has more illegal immigrants expecting free health care than the entire populations of most of those nations.

Secondly...the massive bill in the congress doesn't reflect the Canadian system at all. What is envisioned in the bill would make Canada's health care system look amazingly "free market" and incredibly efficient in comparison. Pointing to Canada and trying to relate the two systems is both absurd and dishonest.

Relation to the Health Care Debate:

This argument should be trashed immediately if a real discussion is to be held.

Myth Number Three:

This one was repeated constantly at the Summit: The health care legislation will reduce the budget deficit.

This is probably the most astounding myth of all...it's not really a myth yet as it simply hasn't reached the point of being repeated often enough to become "myth" in the public mind. But they're trying.

There are only three ways to reduce a budget deficit...you stop spending money and reduce your spending while maintaining revenue income...or you increase revenue income more than you are currently spending.

The third way is the ultimate crime against the populace: you increase spending, but increase revenue (taxes) even faster than you increase spending. This is the method outlined in the health care bill. Spending will increase by trillions, but trillions more are slated to be collected in taxes...voila...deficit reduction!

Unfortunately, this third method has gotten us into the fix we're into economically and is not going to repair it. The hard reality is that we can only reduce the deficit by reducing spending. History has shown us that tax reductions can also reduce deficits as normally revenue collections go up when tax reductions increase production and employment overall (creating a larger tax base). Sometimes this can happen even when spending is going up...but won't happen for long.

(Note that this is what ended up creating a problem during the Bush presidency...Congress did cut tax rates, and revenues grew significantly, but then they insisted on spending that money and borrowing more. Whoops!)

Relation to the Health Care Debate:

Higher spending and higher taxes always damage the economy. Employment will suffer, therefor the tax base will be decreased, so taxes will have to be raised again, resulting in more unemployment. The vicious cycle continues until something breaks. The higher you raise taxes to "pay down the deficit" the less revenue will be generated in the long run and the greater will grow the deficit...until you dramatically decrease spending. In this case, by bankrupting something in the system...such as health care. Instead of quality health care for all...you end up with mediocre, or worse, health care for all...fair, but not at all desirable.

There were other myths spoken and alluded to at the Summit. But these were among the more important. Remind your elected officials that these myths are simply not fact...and when they quote them, if they quote them, feel free to correct them immediately. We are not children...and we no longer believe in bedtime stories and fairytales. Don't be afraid to let them know those days are over.