Demand Side Economics

The supply economics of the Reagan era has taken quite a beating. Today we are about 1 year into the biggest demand side economic experiment ever attempted. We are going to see that it simply does not work particularly when the demand is created by giving people who don't pay taxes the money to create the demand. The government can't create a sustainable demand with this policy because it would be akin to having a $787 billion stimulus package every year. On the other side of the coin, encouraging people to invest will provide the impetus to get the credit markets moving again. Setting the capital gains tax at a permanent 15% would net the US government $15 on every $100 in profits generated. That could go a long way to closing the federal deficit gap. The other option, demand side, is to tax the American people until there is no more income to tax. One year into the demand side economic experiment we don't have anything to show for the money we spent except for higher unemployment. The Treasury Secretary who 1 year ago was telling us the jobs would be coming in 2009 is now saying they should start to pick up in the spring of 2010. When it doesn't happen again, and it won't, perhaps some people will start to pay attention. I doubt it though. Too many are still mesmerized by the orator despite the realities his policies bring.

Health Care Update

Last week the president told Republicans to stop using scare tactics in opposing the health care reform. Yesterday he laid out a line of scare arguments himself including saying the federal government would go bankrupt. Now there's no doubt that health care costs are going to continue to rise and something should be done but blaming the bankrupting of the federal government on a failure of the health care reform bill is a bit of a stretch. I guess we are just supposed to ignore the $700B stimulus and all the other money this administration has spent. But let's stick to the health care arena. I have a few recommendations that could significantly reduce medical costs in this country.
1. Tort reform for malpractice. The amount of money spent on malpractice itself is fairly small, less than 1% of health care spending. However, the amount of money spent of unneeded testing which doctors order to prevent getting sued is a significant portion of the health care expenditures coming in at about 9%. Tort reform could reduce this.
2. Allow Medicare and Medicaid to shop for the best drug prices. This is currently against the law. The elderly use more medications than any other demographic and more than many other age demographics combined. With our baby boomer bubble moving into their elderly years the demand for drugs paid for by Medicare and Medicaid is going to increase significantly. Let's allow them to purchase at a better price and save the difference.
3. Ease the government mandated administrative requirements in health care. Some studies estimate that administrative costs eat up 17 of every $100 in medical expenditures. There is a lot of opportunity for savings there.
The House bill which passed and the Senate bill which is floundering don't have any cost reductions in them. The House bill is supposed to save about $160 billion over 10 years but that savings is predicated on future reductions in Medicare/Medicaid spending of $420 billion over same period. No congress has ever reduced Medicare/Medicaid spending and I don't think any future one will either. We don't need the federal government to reform the health care in this country, we need the federal government to stop putting expensive requirements and restrictions on the health care system.

Tiger, Tiger, Tiger.

So long Tiger, it was nice knowing you. Sorry you didn't turn out to be the man we thought you were.

Health Care: Quick and Dirty Update

Today the President sent the Vice President out to make some comments on health care reform. Vice President Biden spoke in an attempt to counter the arguments from Republicans that the current health care bill would reduce Medicare/Medicaid benefits to the elderly. He characterized those arguments as "scare tactics." What he didn't say, and probably never will, is that for the health care reform bill now making its way through congress to meet the goal of not increasing the federal deficit, Medicare and Medicaid expenditures must be reduced by about $420 billion over the next ten years. Do I believe that will happen? Not in a million years. No congress has ever reduced the expenditures associated with Medicare/Medicaid and I doubt this one will either. That said, they are talking out of both sides of their mouths. One side says the health care reform will not increase the federal deficit based on reductions in Medicare/Medicaid while the other side says we won't cut Medicare/Medicaid.