An alternative to popular faith

The average person doesn’t understand the difference between federal government finances, state government finances and personal finances. The same could be said of most politicians and most editorial writers.

But one expects more of the Wall Street Journal, whose editors are, after all, immersed in finance all day long. So it was saddening to read WSJ’s March 1, 2010 editorial titled “Back to the ObamaCare Future.”

The editorial begins, “Natural experiments are rare in politics, but few are as instructive for ObamaCare that Massachusetts set in motion in 2006.” Do you detect the problem? The WSJ thinks a state-run, health-care program provides a learning template for a federally run program, despite the crucial differences in ability to fund programs. (States’ access to money is limited; the federal government’s access is unlimited.)

The WSJ properly criticizes Governor Deval Patrick for wanting to set hospital and doctor rates. Why does the governor want to do that? So he can cut the rates. You see, the Massachusetts program is running a deficit (of course), so rather than committing political suicide by raising taxes, the governor wants to assure worse health care by discouraging doctors and hospitals from operating profitably in his fair state.

The editorial continues, “The administered prices of Medicare and Medicaid already shift costs to private patients, while below-cost reimbursement creates balance-sheet havoc among providers.” Yes, that’s right. Medicare pays too little, which forces our most talented doctors into boutique programs, where annual fees run anywhere from $50 to $5,000 (or more?) Eventually all the best doctors will be unaffordable to the very people Medicare is supposed to help. And smaller hospitals will disappear. This because of federal price controls.

The editorial continues, “It doesn’t even count as irony that former Governor Mitt Romney (like President Obama) sold this plan as a way to control spending.” Sure, states need to control costs, but why doesn’t President Obama understand the difference between state spending and federal spending?

Let’s see if we can clarify the difference: Taxpayers pay for state spending. Taxpayers do not pay for federal spending. Can I make it any simpler?

Because states do not have the power to create unlimited amounts of money, they must rely on taxes and borrowing. Eventually, the ability to borrow runs out, and everything falls on the taxpayer. Ultimately, there is a direct relationship between state taxes and state spending.

The federal government does have the power to create unlimited amounts of money, and so does not need to rely on taxes. It does not even need to borrow (See: http://rodgermmitchell.wordpress.com/2009/09/10/it-isnt-taxpayers-money/)

The biggest problem with Medicare (and Social Security, for that matter) is that it’s limited by FICA collections. Medicare is a version of federal price controls, which WSJ properly criticizes. Government price controls always are damaging. As WSJ said, “. . . hospital rate setting in the 1970s and 1980s . . . didn’t control costs . . . and it killed people.”

If government medical rate setting doesn’t work, and in fact kills people, please tell me again how the universal health care plan is designed to save money.

And if the federal government has the unlimited ability to create money, without ever charging the taxpayer, please tell me again why the universal health care plan is designed to save money.

Oh, the unnecessary damage the debt hawks have caused — not just financial damage, but human damage — and all for refusing to acknowledge that federal deficits not only are beneficial, but necessary for a growing economy.

Rodger Malcolm Mitchell
http://www.rodgermitchell.com