In the long run and those that see and those that don’t

John Maynard Keynes the “economist” who created the economic school of printing money and inflation as the solution for every economic problem once said “in the long run we are all dead.”.  He said this in response to those that pointed out the idiocy of substituting printing money and keeping interests rates low as how we should increase living standards.  The just of the statement was “the debt collector will come after your dead so who cares.”  given the popularity of his views with politicians and the media, once wonders if the constant “its about the kids” mantra liberals use to spend more tax dollars is a bit hypocritical?  Enough about Keynes (who was a pedophile as well as a socialist..very typical of the upper class British public sector elites of the early 20th century and apparently the same of many Catholic Priests and US congressional staff).

Anyway the statement by Keynes is a good intro to the subject of this post.  Most people crave predictability and certainty.  I see this in my personal life and in every company I’ve worked in for the past 30 years.  Now I’ve spent my time in the corporate world in finance, operations, strategy, and marketing so you would think I would see differences in the different organizations but alas that is not true.  Most people want the big picture told to them.  Some can then figure out how to get things done in the “reality” that is presented to them.  Most unfortunately just want to be told what to do.  And these are the folks who often climb the corporate ladder the fastest.   But when a company or a country goes off the cliff, it seems why is obvious in hindsight.  Kodak and digital film is an example.  Kodak had a bevy of in house economists and “futurists” and look what happened to them. Xerox is another example…GUI, Email, and other breakthroughs they just fritted away.  HP and even Microsoft had the same problem albeit it didn’t put a stake in the firm like Kodak and shortly Xerox.

Short term thinking is just easier in some ways.  You have better data, the chances of a major disruption is low, prior experience has always been predictive of what to do. And our skills and tools we have (like financial analysis, excel, statistics) have a bias to what we know.  But most importantly these tools and the past give a window of predictability and certainty.  It is just easier to live “short term” mentally.  And if you have to do something which you know will impact the future in a negative way but it helps the short term giving you the present certainly and predictability, humans will do this even if they know it makes no sense down the road.

The example I wanted to cover in this post is healthcare “insurance” in the US.  Now “insurance” is usually thought of a bunch of people paying into a “policy” which will cover the need for some of the payers.  By definition that is what insurance is for.  But that does not exist in the US today.  You have massive government  distortions of the “insurance” market.  Almost 50% of all citizens are covered by direct payment by the Federal or State Govt to health care providers in Medicaid, Obama Care, or Medicare.  What is left are “private” firms offering health insurance but these plans are highly regulated by the States.  In NY State for example, health insurance must cover fertility treatments which are often used by women over 40 who put off having kids too long.  So this cost must be put into the overall “pool” which means everyone on a private insurance policy must pay for someone else fertility treatments.  Multiply this by 100X in each state and you see why your monthly bill has gone up 4X or more and you have to spend hundreds before you get any insurance copay.  Insurance is about people in similar risk pools , pooling their money together.  If you risk is higher you have to pay more for insurance.  But the politicians could never allow this as the “folks” would scream and yell how unfair it is.  Which it is but that is irrelevant.  The real question as health care costs continue to climb (we now spend more on federal health care programs than SS and Defense), what can be done?

Nothing.  With apologies to folks like Rand Paul who I think very highly of and argue for a private sector health care insurance system the forces at play will ensure a long term result of a complete government funded healthcare service.  Notice I don’t say insurance because that is not what it will be.

Why?  In a democracy you cannot cut any entitlement.  You just can’t or will be voted out of office once the entitlement impacts a majority of the population.  Government healthcare will add more and more services if they benefit a sizable voting bloc (or one that votes in high %).  Lasex Surgery…nearsighted folks are tens of millions..shouldn’t govt pay for this?  After all think of the savings in glasses and increased productivity or at least that would be the narrative which politicians will pick up on and add this procedure to “covered” services.  Breast implants? Why not?  It will increase self esteem for women and help the low % of women in the hard sciences and engineering. Right?  This is how the next 15 years will play out…

The government continues to distort the health care market.  Politicians of both stripes will continue to add more and more goodies to private sector health insurance plans and expand government programs. The end game will be the “argument” that going to a fully govt program for everyone will cost less..it becomes more and more of an issue as private insurance will continue to cost more.  There might be some face saving measures by the GOP but this is where it will end.

Now it gets interesting as any entitlement only grows…so if there is any cost savings it will be an accounting slight of hand for a few years.  And with the interest on the debt going up and up, SS payments going up and the inability of Congress to either cut other programs and/or really raise taxes the solution will be more debt.  Eventually the interest payments on the debt at the federal level will demand some sort of “debt forgiveness” as the politicians won’t be able to raise taxes to the levels needed nor be able to pay any of the principal when it comes up. Rolling over the debt will just increase interest payments.  But for most people they will not ever figure out their demand for “free stuff” is the cause.

Given the economic cliff government will be facing, I expect the “battle cry” will be cutting costs which the media will pick up.  Stories of corruption in Medicare will increase and increase.  Experts touting “cost savings” measurements as the savior will be a highlight of the nightly news and NYT front page.  What little good might come from this is the opening of the existing highly regulated system in healthcare and the rise of the consumerization of products and services.  Hell an iPhone is more sophisticated than almost all medical devices at a fraction of the cost.  The existing sales and service channel will be impacted by the intranet and AI.  Because in the end govt will ration services….it has to for any socialized system.  I could even see robots taking over from nurses and other in the industry.  Which would be ironic as it would impact the democratic bases significantly.

So the free market will respond as it always does to try and meet consumer desires in the most economical way.  Even in a govt distorted healthcare system.  But the opportunity cost of not going down this govt run medicine scheme is much greater.  That is the massive resources govt will force into healthcare could be better spent actually making healthcare better and improve human lives if healthcare was kept out of govt completely.  In the long run the healthcare system will be very different to the point that if anyone could see beyond the tips of their noses they would be screaming no to expansion of any Federal entitlement program especially for health care.  But then again people think in the short term.  In the long run we are all dead but humans have a habit of living beyond the “short term” quiet often.  And tomorrow will soon be today.

Titus