The Candidates on Health Care

The Wall Street Journal has a good summary on the health care plans of both candidates in the upcoming presidential election (thanks to Paul for sharing this on Google Reader; please also congratulate him on his recent nuptials).

Let's be frank: both of these plans suck. Neither deals with the real problem of health care in this country. There is an artificial demand on the health care system created by a dearth of doctors and the restrictions on acquiring prescription drugs, among other things. All these things drive the cost of health insurance and raise it to exorbitant, unaffordable levels. Currently, health care costs in the U.S. are estimated to be approximately 15% of GDP, and expected to rise to 19% by 2017.

According to the Bureau of Labor and Statistics, over one-third of doctors in 2006 worked over 60 hours per week, and there were approximately 633,000 doctors, a mere 1 for every 475 people in this country. And why do we need to see these overworked physicians to get simple prescriptions for penicillin and allergy medicine? While honeymooning in Greece a few years ago, I experienced my first allergic reaction to some bad fish. My face had swollen to twice it's normal girth and I itched all over. My ever resourceful wife ran to the nearest pharmacy and purchased some Zyrtec over the counter, which instantly eliminated my symptoms. Had I suffered from this allergic reaction in the United States, I would have surely perished from an acute case of big red face disease (BRFD) since I wouldn't have been able to get such a simple drug without visiting my family practitioner and getting a prescription. These things drive the cost of health care up as we rely on the few physicians we have to do mundane things. The demand on the health care system is entirely artificial. These two problems could easily be solved by graduating more physicians every year (accounting for the rate of population increase), and easing restrictions on the purchase of simple prescription drugs (an illiterate child in India can get penicillin from the local pharmacy, but a Ph.D. in pharmacology can't in the U.S.).

That being said, neither candidate wants to tackle the root of the problem. Instead, they both want to exacerbate the issue by doling out government lucre in the form of tax credits (McCain) or a federal insurance program (Obama). By giving away money in either form, all they're really doing is feeding into this artificial demand enforced by the current system. The previously uninsured sector of the population will increase the demand on an already-strained insurance industry. Nothing would be done to alleviate the supply issue. To top it all off, both plans would cost trillions of dollars over the next 10 years at a time when the deficit has reached its highest level yet (in unadjusted dollars, though not as a percent of GDP).

If I had to pick one of these odious plans over the other, I'd opt for the McCain plan. It makes some token moves in the right direction, but still falls short of addressing the system's fundamental problems. Deregulation of the health insurance market is one of its more attractive aspects. McCain advocates the removal of the restrictions on purchasing health care plans from companies across state lines. Current law prevents consumers from buying into a plan in another state. Removing this restriction would increase competition between HMOs and help to lower the price of coverage overall, though in light of the aforementioned problems this might have minimal impact on the cost. Still, I can agree with the principle behind it, as deregulation also offers the consumer more in the way of health care choices.

Another positive aspect to the McCain plan is its push away from employer-based insurance by giving a $2,500 tax credit to individuals (or $5,000 for families) to purchase a health care plan. While I'm against giving away this kind of money without addressing the issue of the artificial demand, the side effect of veering away from employer-sponsored health programs is a positive thing. People should not have to base their health insurance status on their employment. Losing your job means losing your health care, and that is something that really shouldn't be dependent on anything. One should be able to secure a health care plan regardless of employment status, a failing system revealed by the fact that about 1 in 7 people don't have health insurance in this country. In this op-ed from the Wall Street Journal, David Gratzer of the Manhattan Institute argues that the employer-based health insurance system has become defunct. (Interestingly enough, one of his references for this assessment is one of Barack Obama's economic advisors, David Cutler).

In any case, both plans are decidedly the wrong course of action, but McCain's has token elements that nudge the industry in the right direction. I will be voting for the lesser of these two evils.

Bailout!

In principle, I'm decidedly against any bailout package for failing financial institutions. Why should taxpayers bear the cost of propping up banks that make risky, ultimately foolish decisions? Aside from that, do we really want to send the message to companies saying it's okay to take risks since failures will be buoyed by the government? Additionally, I firmly believe the individuals who took those adjustable-rate and negative amoritization mortgages without comprehending the potential repercussions should also be made to suffer their losses. Borrowing hundreds of thousands of dollars is no mean undertaking and it's a mutual failure of both lender and borrower should the risk overcome the reward.

The current situation is a little more complicated, however. The bad assets in question, in the form of mortgage backed securities (MBS), are ridiculously convoluted such that no one really knows how much money is tied up in a potential failure. While a mere 1% of homes nationwide have entered foreclosure, the rate of increase is significant and shows no signs of slowing down, which could result in a tightening of credit policy (despite the fact that the number of commercial and industrial loans has risen over the past year).

While we can debate the necessity of Paulson's bailout package, its structure leaves much to be desired (which is a politically correct way of saying "it sucks"). A $700 billion tax-payer funded lump of cash for the government to purchase bad assets, no oversight, no regard for who might succeed him as Treasury Secretary: all this so we can keep afloat firms in a market rife with blatant incompetence? No, thanks. On top of it all, there is the pressure to accomplish a bailout in one week, hardly enough time for Congress to deliberate the matter, much less consider decidedly superior alternatives.

Let's assume, for the moment, that a bailout package needs to happen ASAP (a big assumption since overt effects from these failures have yet to be really felt). Here is what I propose: instead of having the government purchase these bad assets, we should loan the money to solvent banks and private equity firms so they can purchase the MBS in question. This would be the most efficient way to pump liquidity into the market, I think. Much less oversight on the part of the government, and the financial institutions will redistribute the bad debt on their own via traditional market forces, thereby protecting the integrity of the larger financial institutions. It's not the government's place to own these securities; that's the function of our free market.

I'm interested in hearing what others have to say on the matter, in addition to any alternative bailout plans out there.

Pork Chopped

In one of my recent public tirades against Barack Obama (again in a bar on a Friday night; I know, I know, I really need to stop doing this), I came across a nice young man who, when asked why he was voting for the Democratic nominee, responded "Because he's fresh!" When I asked him to elaborate, he responded confidently that Obama was untained by Washington politics and wasn't knee-deep in things like pork barrel spending.

Um, what?

I shouldn't have been surprised by this for two reasons: a) while a pleasant sort, it was painfully obvious that this nice young man was not at all well-versed in the machinations of his candidate of choice, or politics in general (for which I don't really blame him any more than I would the vast majority of people), and b) the Obama campaign has done a splendid job of avoiding direct comparisons to the Republican candidate's record on earmarks (until the arrival of Sarah Palin on the scene). And since all the news these days is clearly biased in Obama's favor, it's not difficult to see why the press tended to gloss over this subject.

The term "earmarks" refers to requests by Senators and Representatives for federal funding of pet projects in that member of Congress' home state or district. These requests are usually tacked on to bills just prior to voting. Once the legislation is passed, the funding requests become part of the law and are appropriated. Here are the problems with earmarks:

• Transparency - as in there is none; members of Congress are not obligated to disclose how much federal money they request for their pet projects
• Procedure - the practice of tacking on a rider to a bill immediately prior to the vote is dubious at best; those rendering the decision are forced to approve spending bills they wouldn't necessarily agree with if they are in favor of the original legislation
• Causes - ostensibly, earmarks can go towards worthy projects like schools and hospitals, but politicians usually request funding for inane things that don't really warrant spending; even if the cause is worthy, many causes don't necessarily deserve federal money (i.e. your tax dollars), especially when they may have other sources of funding available

Barack Obama has a fairly poor record when it comes to earmarks. He's requested nearly a billion dollars in federal money between 2006 and 2008. In absolute terms, this is not nearly as much as others in the Senate (he's no Thad Cochran after all), but it's a fair sum considering he's been in office for only 3 years. His list of earmarks contain several shady and egregious requests, including $1 million for a new pavilion at the hospital where his wife is Vice President of Community and External Affairs, and military funding for General Dynamics, which is directed by James Crown, long-time Obama supporter and fundraiser.

Allow me to come to Obama's defense on this issue for just a moment. Earmarks are a decidedly small portion of the multi-trillion dollar budget passed by Congress. Obama has made his earmarks public record, which is certainly not the norm. Finally, Obama has finally stepped up and done the right thing by requesting no earmarks for the 2009 fiscal year, which is a lot more than we can say for certain other senators. I am giving credit where credit is due.

However, if we compare Obama's record on earmarks to Senator John McCain's, we find a stark disparity. In his 20+ years in the Senate, McCain has requested exactly zero dollars in earmarks. He eschews wasteful spending and has called on his fellow senators to do the same, unfortunately to little effect.

Why are the candidates' records on earmarks important? I believe it is one of the few ways we have of determining their fiscal responsibility based on their experiences. The deficit is about to reach an all-time high, which has the calamitous effect of raising the tax burden on our children and making it more difficult for individuals to accumulate wealth. (As an aside, there are many that argue that a moderate deficit is a good thing for the U.S. economy as it provides international collateral that promotes trade and liberates capital from inefficient markets. But is a deficit the only way to do that, and do we need such a monumental one?) While earmarks represent but a small portion of the national budget, it is one of the few indicators we have that allows us to gauge financial conservativeness. Cutting wasteful government spending eases the tax burden on all of us (and our children) and promotes individual and corporate prosperity.

Senator McCain clearly wins on this issue. I believe it is time we put a real fiscal conservative back in office, not the fake one we have now. The last thing we need is someone who plans on increasing federal spending on wasteful government projects. Obama's plan has undergone serious scrutiny and has been found wanting. While Obama plans to spend, McCain promises to cut back on expenditures and veto any bill containing profligacy in the form of earmarks.

It's comical how everyone's supposed "agent of change" is really the one mired in typical Washington lucre while the one derided as "Bush III" has been the model politician in this regard. Will the public ever learn? Even if they do, will they ever change their minds?

Thank You, Come Again

Despite the fact that no formal announcement has been made, various news sources have reported that Senator Joe Biden of Delaware will be Barack Obama's vice-presidential candidate. Yet another abject racist on the Democratic Party ticket. Good job, guys.

Then again, Obama could have made an even worse choice.

This blog entry has suddenly become a good segue into another issue I've been requested to write about. Coming soon to a blog near you.

Sad At ANWR

Updates to this blog have been infrequent as of late, for which I apologize profusely to my readership (yes, both of you). I spent all of last week trekking through the Andes to the storied ruins of Machu Picchu. Since a picture is worth a thousand words, here is the image tells all about my trip:

I nearly fell off a cliff while posing for this stupid photo. Luckily, we got it on the first try.

In any case, let's put aside my acrobatic achievements south of the Equator for a moment and discuss that which the title of this blog entry alludes to (hint: it's not my second-favorite Egyptian of all time; it's not even my favorite Egyptian): drilling for oil in the Arctic National Wildlife Refuge (ANWR). A great debate is raging across the country regarding this issue and its ramifications. On the one hand, there are those who believe in maintaining the integrity of America's coastal environments above all else. At the other extreme are those who are willing to despoil said areas in an effort to extract a domestic source of energy. My opinion is that there is no good reason not to drill there. Let us examine the reasons why people suggest we shouldn't drill there to understand why I feel this way.

First, there is an environmental concern. The conservationists believe this tract of land should be preserved in order to maintain its flora and fauna. There are all kinds of birds that roost in these lands, in addition to a large population of caribou. I agree with the principle of this argument as I am a Teddy Roosevelt-styled conservationist: I believe in protecting large swaths of the wilderness for the enjoyment of the people and the survival of various species. However, considering the scale of the land required for drilling, I don't this argument makes much sense. ANWR is approximately 19.8 million acres in area, of which only about 2,000 acres (3.125 mi²) would be developed for drilling (about 0.01% of the total area). Yes, some birds would be displaced and the caribou would lose a portion of their calving grounds, but let's be realistic here: are we really concerned with preserving such a tiny fraction of the land in the face of such volatile oil prices? It is silly to stymie our livelihood on such a small area of practically no consequence.

And that brings me to the next point: those opposed to drilling in ANWR argue that the increase in oil production will have no bearing on the price of oil. They usually base their argument on an Energy Information Administration report that cites a minimal impact (< $1) on the price of oil at peak production in ANWR. Additionally, the report states that the impact would be 10-20 years from now as production ramped up. I do not believe this to be the case. We have only to look at recent history to show that there will be an immediate impact. Merely announcing that ANWR is open for drilling would send the price tumbling.

For evidence of this, let us consider some recent news events, such as the threat of Hurricane Dolly in the Gulf of Mexico. Oil production in the Gulf was halted in fear of Dolly, and that triggered a $3.09 spike in oil prices. Also, after last June's OPEC summit meeting, oil prices soared to a record high of $136 after Nigeria (the fourth-largest exporter to the U.S.) expressed concerns about militants bombing its pipelines, thereby reducing its supply. Finally, consider the timely announcement made by President Bush that the White House ban on offshore drilling had been lifted. This accelerated an ongoing drop in oil prices (due mostly to a decrease in demand and other market forces).

The point is this: news about supply and demand affects the price of oil almost as much as the actual supply and demand. Currently, there is thought to be about 9 billion barrels of oil in the Gulf of Mexico, roughly half of what is predicted to lie in ANWR. News about the dramatic increase in the domestic supply by merely announcing the removal of the ANWR drilling ban would set off a selling spree that would reduce the price of oil considerably.

Finally, we stand to gain something even more important from drilling for oil in ANWR: energy independence. Not having to rely on autocratic, despotic nations like Saudi Arabia and Nigeria would be the greatest benefit from domestic drilling. Domestic oil is, of course, just one of the means to this end. Delving into alternate forms of energy, (nuclear, wind, solar, et al.) is the more important issue to consider. However, the sad reality is that the U.S. is not getting off the oil standard any time soon. Thus, we might as well use our domestic supply while we develop new technologies that will one day supplant fossil fuels. Personally, I'm sick of this great nation remaining beholden to terrorist countries whose populations want nothing more than to kill innocent Americans. Drilling in ANWR will help us move away from these bonds.

I have yet to come across a legitimate argument for not drilling in ANWR, and more than enough in favor (a friend of mine recently pointed out that drilling in ANWR would reduce oil spills, the vast majority of which are caused by leaking tankers; the oil from ANWR would be transported via the Alaskan pipeline; as compelling as all this sounds, I have yet to independently verify it). I'm interested in hearing other thoughts on the matter, though I believe the evidence leans towards lifting Congress' ban on offshore drilling.