Sunday, March 08, 2009

What does universal health care have to do with the economic mess?

Tell me again why we cannot get out of this economic mess without fixing health care? I have read over twenty putative explanations for why and how we got where we are in one scary recession and so far none of the financial pundits nor card carrying economists have suggested that lack of medical coverage and too high health care costs caused the problem or was even a major contributing cause.

I have read that we had first a housing boom and then a bubble and then a crash whose effects were hyper-amplified beyond most analysts' wildest fears by a situation in which: entities that made loans sold them to others who packaged them in ways few understood, many of the loans were made to people who could not afford them,mortgage based securities (MBS) based in part on bad loan were markedly overvalued by rating companies,financial entities who bought and sold MBSs were dangerously over leveraged and according to one school of economic thought (the Austrian School) a major driving force was the artificially low interest rate driven down by the Federal Reserve system in this country and by other central banks around the world.

If one plows through a lucid and laboriously documented academic discussion by Marcus Brunnermeier from Princeton's economic department you will be treated to a discussion of how he suggests the housing bubble was made possible by cheap credit supplied both by a surplus of foreign ( mainly Asian) money looking for a good return on investment and an expansionary Federal Reserve Policy,of lowered lending standards ,of major changes in the banking system (i.e. going from loan and keep , to loan and sell off the loans), of various actions by banks to establish a "shadow banking"system involving off balance sheet investment vehicles exposing them to liquidity risk, of investments entities relying more and more on a borrow short and loan long arrangement . In short he describes elements of the events that took place as a mortgage crisis was amplified into a severe finanacial crisis.

If medical costs and folks without medical insurance played a role in any of this he and every other economists and financial analysts and pundits who has written about it really missed the boat.

Yet, we told by the new administration that we cannot get out of this financial mess without fixing the health care system. We are told that for recovery we will have to simultaneously cut medical care costs and ensure that everyone has medical care and improve quality of care. Of course, there are good arguments to the point that we do spend a lot of medical care and thoughtful people have a legitimate concern that some folks do not have health insurance and that there is a great deal that needs fixing but what do those concerns have to do with a housing bubble,burst, and mortgage crisis amplified into a financial crisis and why is a health care fix a necessary part of recovery?

Dr. Krauthammer hammered away at what he describes as Obama's glaring non-sequiturs in his Washington Post commentary dated 3/6/2009 entitle "The great Non-sequitur"

President Obama has asserted that the mess we are in relates to the country failing to obtain universal health care, green energy and better education. Dr. Krauthammer gives us this quote from the President's speech in which we are seemingly finally told why the real reasons of why we are where we are now:

"Our economy did not fall into decline overnight," he averred. Indeed, it all began before the housing crisis. What did we do wrong? We are paying for past sins in three principal areas: energy, health care and education -- importing too much oil and not finding new sources of energy (as in the Arctic National Wildlife Refuge and the Outer Continental Shelf?), not reforming health care, and tolerating too many bad schools.
Krauthammer says in reply:
.. the list of causes of the collapse of the financial system does not include the absence of universal health care, let alone of computerized medical records. Nor the absence of an industry-killing cap-and-trade carbon levy. Nor the lack of college graduates. Indeed, one could perversely make the case that, if anything, the proliferation of overeducated, Gucci-wearing, smart-ass MBAs inventing ever more sophisticated and opaque mathematical models and debt instruments helped get us into this credit catastrophe. .......
Clever politics, but intellectually dishonest to the core. Health, education and energy -- worthy and weighty as they may be -- are not the cause of our financial collapse. And they are not the cure. The fraudulent claim that they are both cause and cure is the rhetorical device by which an ambitious president intends to enact the most radical agenda of social transformation seen in our lifetime.

Whether on not you agree with Dr.K's characterization of what Mr. Obama's agenda really is, it is very hard to accept the claim that fixing his big three initiative is necessary for the economic repair.To be fair I have to recuse myself regarding expressing an opinion on the carbon cap and trade issue,I have not researched that enough to justify comment but if the lack of a universal health care plan in this country is a cause of the economic downturn, it must be the best keep secret on the century. Should not Great Britain have been spared the economic turmoil since they have had a universal health coverage system in place for years?

2 comments:

Chuck Brooks said...

With all the players in healthcare at odds with each other, and given the failure of all previous attempts to 'fix' the problems largely created by the politicos to begin with, then the failure of the current attempt to 'fix' healthcare is a good cover for the other failure to 'fix' the financial system's problems, which was also created by the politicos. The failure of either can be blamed on the other, allowing the politicos to demand more power/intervention. Obama's non sequiturs are a replay outlined in De Niro's Wag The Dog movie.
Chuck Brooks
FutureWare SCG

Anonymous said...

well, if there is government mandate to have medical insurance,that would be a stimulus to the insurance industry and the IT portion is certainly a stimulus to a few IT firms one of which the new health care czar had a fiduciary duty to as a board member.