Thursday, November 19, 2009

Medicare: The Sequel

Nicholas Kristof, in The New York Times, cites similarities between the arguments that are currently being made against the Obama/Pelosi/Reid health care plans, and objections that were raised when the Social Security and Medicare programs were first enacted. He argues that those objections proved to be wrong in relation to those programs, and so should be considered invalid arguments in the current debate.

I disagree.

One of the arguments was about "deteriorating service", which Kristof contends did not happen with Medicare. Now, I'm still just a bit too young to have experienced Medicare, but I know that under any managed care plan I've been under, the quality of the service diminishes in proportion to the amount by which costs have been shaved down. The physician is always in a hurry, and unable to devote sufficient time to each patient. You get what you pay for. Or, looked at another way, a physician needs to schedule more patients during any given period of time, if he or she is being paid less for each of the patients.

I have heard that the same phenomenon occurs for Medicare patients, which would make sense, given the cost constraints involved. And there's every reason to think that that would happen with a new program.

Regarding the bigger picture, the financing of Social Security and Medicare is clearly unsustainable. As is the case with lucky participants in every Ponzi scheme, early beneficiaries have received benefits. But expanding life spans and declining birth rates have combined to decrease the ratio of workers to retirees. If benefit levels are to remain at anything near their current level, payroll tax rates will need to go up and up and up.

Kristof blithely states that payroll taxes do not "add to Americans’ tax burden so as to kill jobs". But a good case has been made that the imposition of payroll taxes during the depression was one factor that kept unemployment high for a longer period of time in the 1930s, than had been the case with similarly severe downturns before that.

And much has been said about jobless recoveries from recent recessions. That has always been an issue to a certain extent, given that unemployment is a lagging indicator. That's economist jargon for the pattern that, after GDP begins to grow again after a recession, it takes some further time before the unemployment rate starts to decrease.

Supposedly that lag between recovery and employment has been getting longer for recent recessions. If that's the case, then the higher payroll taxes in recent years are probably a factor.

Businesses always have a choice between what economists call labor inputs and capital inputs. Capital inputs are plant and equipment. They represent what the unions have traditionally dreaded as "automation". If payroll taxes continue to rise, employers will have an incentive to turn more toward capital inputs, and recoveries will become more and more jobless.

Kristof contends that those of us who oppose his point of view are "on the wrong side of history". That Marxist language, which was used to justify the policies of, for example, the Soviet Union, was turned on its head two decades ago, when history was shown to instead be on Ronald Reagan's side.

Now Franklin Roosevelt (whom Reagan inexplicably continued to admire throughout his career) is the one who is being shown to be on the wrong side of history. Much as I like to see Roosevelt's ideas exposed as paskan (that's a Finnish noun for something brown and malodorous that I'm euphemistically inserting here), I'm concerned about dealing with the huge problems ahead with the current programs. In light of that, it's certainly irresponsible to create more entitlements (as George W. Bush did with Medicare). In other words, let's not veer further toward the wrong side of history.

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