Enlightened Economics

Economics for an Enlightened Age

Posts Tagged ‘healthcare’

• Short Term Gain, Long Term Pain

Posted by Ron Robins on April 12, 2011

By Ron Robins. First published March 31, 2011, in his weekly economics and finance column at alrroya.com

Unacknowledged as key causes of most developed countries’ growing and unsustainable debt is their citizens’ lack of happiness and well being. This induces people to seek immediate comfort in material goods, drugs, and activities and lifestyles that eventually cause them, and their societies, great harm, ill health, and massive debt!

After decades of study, Robert E. Lane, the Eugene Meyer Professor Emeritus of Political Science, at Yale University in the US, found that it is a lack of happiness and well being that is eating away the moral fibre of the populations in advanced market democracies. In Professor Lane’s seminal book, Loss of Happiness in Market Democracies, he writes, “amidst the satisfaction people feel with their material progress, there is a spirit of unhappiness and depression haunting advanced market democracies throughout the world, a spirit that mocks the idea that markets maximise well-being and the eighteenth-century promise of a right to the pursuit of happiness under benign governments of peoples choosing.”

Continuing, “the haunting spirit is manifold: a postwar decline in the United States in people who report themselves happy, a rising tide in all advanced societies of clinical depression and dysphoria [anxiety, malaise], especially among the young; increasing distrust of each other and of political and other institutions, declining belief that the lot of the average man is getting better, a tragic erosion of family solidarity and community integration together with an apparent decline in warm, intimate relations among friends.”

It is these conditions which Professor Lane observes that give rise to individuals seeking immediate comfort anyway they can. Hence, most developed countries’ populations gravitate to instant solutions that might ameliorate their lack of happiness and anxieties. This, no matter the long term monetary, psychological, or physical consequences and costs to themselves or society. Professor Lane believes it is imperative for western democracies to give the highest priority to improving the happiness and well being of its individuals. And this means their focus should be on human psychological health and relationships—not about income levels.

By looking for hedonistic joys in the present, many developed countries’ individuals seek excessive material consumption which then creates unsustainable levels of consumer debt. In the US, though to a lesser degree in other developed countries, consumer debt has grown far faster than individual earnings gains over the past several decades. Despite a respite in consumer debt growth during the past two years, signs are emerging that US consumer debt might well begin to outpace actual earnings gains again in 2011, thereby creating conditions for yet another future financial crisis.

Also, and again much ignored in the debate concerning debt, are other individual behaviours that induce it. For example, to provide a modicum of happiness and to make life more bearable, people in America (and in many developed countries) consume drugs (legally and illegally) in extraordinary amounts. These drugs—alcoholic beverages, marijuana, cocaine, cigarettes, prescribed and non-prescribed medications, etc.—often create dependencies that impair health, brain and psychological functioning. These dependencies then lead to greater crime to support drug habits, increase prison populations and criminal/legal costs, raise the number of accidents everywhere, and encourage unhealthy lifestyles that in turn produce epidemics of obesity, diabetes, heart disease and all manner of health problems.

Americans spend more on healthcare, by far, than anyone else. In 2009, according to the Centers of Medicare and Medicaid Services, Americans spent $8,086 per person on healthcare, equal to 17.6 per cent of their economic output or gross domestic product (GDP). And such expenditures continue spiralling 4 to 10 per cent a year, far faster than GDP itself. Thereby they add inexorably to future unfunded US federal government medical liabilities that Boston University’s Professor Laurence Kotlikoff believes is about $125 trillion over an infinite timeframe. To fund that liability would require every man, woman and child in America to pay about $407,000 to the US federal treasury!

And among public companies a short term focus on near term profits that potentially create longer term costs and debt has been endemic. Consider this 2001 quote by Maryann Keller on the US automobile industry. In Forbes magazine, she said, “[That] Chrysler, GM and Ford spent billions of dollars to buy their stock in the open market… It was always obvious that product spending [developing new autos] was being sacrificed to provide trading liquidity [ease of selling stock] for big investors while boosting earnings per share. GM, Ford and the Chrysler Group today [in 2001] find themselves with growing gaps in their product portfolios as they lose market share…”

Thus, the US automobile industry preferred to spend profits on supporting their near term stock prices rather than developing new products for longer term profits. By 2009 all but Ford were bankrupt. After losing tens of thousands of jobs and engaging in a massive automobile industry restructuring program, the US government bailed out the industry (for now?) at a cost of about $85 billion. (Canadian governments also supported GM and Chrysler to the tune of $13.5bn CAD.)

Total societal US debt (private, corporate and government) is now likely to continue moving higher again as consumers are forever encouraged to spend now while saving is discouraged due to artificially mandated low rates. Increasing employment, though welcome, is not likely the answer to mounting unsustainable societal debt. In fact, it might well exacerbate it if former long term trends of debt growth outpacing income gains continue.

The US, like most other developed countries, is on a path to increased human suffering and tragic financial circumstances unless it deals with the fundamental issue: enabling individuals and families to become intrinsically happier and experience feelings of greater well being. Only then can the compulsion towards short term thinking and gratification—which builds huge unsustainable long term debt—be stopped.

Copyright alrroya.com


Posted in Consciousness/Psychology, Economics, Labour Issues, Spiritual | Tagged: , , , , , , , , , , , , , , , , , , , | Leave a Comment »

• America’s Economic Rebirth

Posted by Ron Robins on April 12, 2011

By Ron Robins. First published March 24, 2011, in his weekly economics and finance column at alrroya.com

A rebirth of the American spirit and economy is probable. It would be founded on huge reductions of societal debt and consumption. It will arise on re-invigorated American entrepreneurship, a revamped government and healthcare system, new energy sources, local manufacturing and a growing working age population, amongst many other changes Americans will embark on.

However, before America can begin its rebirth, it has to deal with its debts. Total US societal debt may well have reached a tipping point and many investors are wondering when US government bonds will be abandoned. In fact, this process might already be underway. Reuters’ Jennifer Ablan reported on March 9 that Bill Gross’s $237 billion Pimco Total Return Fund, the largest bond fund in the world, had sold all its US government bonds over the past few months.

The most likely cause for wholesale abandonment of US government bonds is when there is broad recognition that the US economic recovery is not self-sustaining—as Bill Gross believes—and that the fiscal stimulus packages and Fed quantitative easing (QE) programmes have been ineffective in righting the US economy. One major result of US bonds being dumped will likely be much higher US interest rates and restrictive credit market conditions. Such conditions could give rise to dramatic falls in consumption as happened in 2008-2009.

In such circumstances, facing a stark new reality, Americans will be forced to look within themselves for guidance. As they do, I believe they will regain their ‘can do’ attitude and surprise the world with a regenerated spirit and incredible enterprise and entrepreneurship. Gerald Celente, probably the most accurate trends forecaster of our time, predicts an ‘American Renaissance.’

More than likely the economic and social circumstances of the next few years will cause a total re-organisation of US governments: federal, state and local. With greatly restrictive finances, many of their services will no longer be available. This will leave room for numerous private entrepreneurs to fill the gaps. Perhaps the area where this will be most felt will be healthcare. As I have written in US Healthcare Delivering a Heart Attack!, financial conditions will force major reductions in Medicare and probably private insurance plan coverage as well. Individuals will have to pay directly for many more services.

With patients in the drivers’ seat by having to pay directly for numerous healthcare services, doctors and healthcare service providers will have to compete in ways they never had imagined before. Alternative therapies such as Chinese medicine, homeopathy, ayurveda, meditation, etc, will compete on a more equal footing with established healthcare practitioners, drug plans, and so on, to provide health remedies. It will be messy and likely finally force down the prices of many healthcare services that had been rising in prices far faster than incomes. Finally, healthcare will become more affordable to Americans. But as in any competitive marketplace, those that offer the most cost-effective services and products will gain most.

There is also the opportunity for eventual US energy self-sufficiency, particularly as many forecasters believe that oil will become ever more expensive—most especially in devalued dollar terms. Renewable energy systems—wind, sun, geothermal, etc —all have the capacity to vastly increase output. An article by Karin Rives on February 18, on the website United States Mission referred to a Bloomberg New Energy Finance report that said US onshore wind power electrical generating costs are now about the same as for coal-generated power. The gradual transfer to electrically driven vehicles is also just beginning.

Furthermore, if environmental safeguards can be found, shale gas deposits in the US could go a long way to ensuring US energy self-sufficiency. In “Facts About Shale Gas”, Washington DC based API states that the US has over 100 years of supply at current gas consumption rates. Moreover, an MIT study reviewed in the New York Times by Matthew L. Ward on June 25, 2010, foresaw natural gas usage doubling over the next several decades to 40 per cent of the US energy market.

Thus, US ingenuity in energy production could substantially change its energy mix. The US could become much more self-reliant while dramatically decreasing its oil related imports that today account for more than 50 to 70 per cent of its trade deficit.

The financial conditions that will befall the world when the US dollar crumbles will probably lead to trade restrictions and tariffs in the US and in many countries. US manufacturing, behind a tariff wall and ‘buy America’ policies, together with a shortage of imported goods, will re-invigorate American manufacturing and technological prowess. Mr Celente predicts an ‘elegance trend’ and the need for durability in all things manufactured.

Similarly, Mr Celente forecasts a rebirth of American agriculture. Americans will demand real, natural food and it will also be grown abundantly in numerous urban and roof gardens.

Looking out over the next few decades, the US has another advantage over other large developed countries. It is expected to have the most favourable demographics as well. By 2050, according to the UN’s 2008 population database projections, the US dependency ratio is forecast to be 63 dependents per 100 working age individuals, compared to 96 for Japan and 74 for Europe.

The next few years will be difficult for America. But beyond that is its revival. Its unsustainable debt burden will be substantially reduced and US governments—federal, state and local—will be financially forced to live within their means. This will entail a huge restructuring of what they do and in the process provide major opportunities for new entrepreneurial activities.

Healthcare, energy, food, manufacturing and technology, will be among the areas that will undergo transformations that will lead America and the world into a new era. A new American spirit probably arising sometime this decade will give rise to the birth of a new US economic paradigm.

Copyright alrroya.com

Posted in Economics | Tagged: , , , , , , , , , , , , , , , , , | Leave a Comment »

• US Healthcare Delivering a Heart Attack!

Posted by Ron Robins on February 16, 2011

By Ron Robins. First published February 10, 2011, in his weekly economics and finance column at alrroya.com

Medical spending could deliver a debilitating heart attack to the US economy, despite the recently passed healthcare legislation that hopes to significantly control costs. Depending on assumptions made, the unfunded US government medical liabilities range as high as $125 trillion, equivalent to about eight times America’s annual gross domestic product (GDP). These unfunded liabilities—money that might have to be borrowed—have the possibility of totally derailing the US economy.

In 2008, Richard Fisher, president and CEO of the Federal Reserve Bank of Dallas cited the US government’s unfunded Medicare program liabilities at $85.6trn over the infinite horizon. He said that including the unfunded liabilities of US Social Security the total rises to $99.2trn. Mr. Fisher further added that were they to be funded, it would require a lump sum payment of $1.3 million per family of four to the US federal treasury! Or alternately, an increase of 68 per cent in federal taxes for all individuals and corporations, for now and forever.

The unfunded liabilities figure of $125trn arose from a conversation I had recently with Boston University’s renowned Professor of Economics, Laurence Kotlikoff, who believes they could range that much also using an infinite horizon time frame.

Now really ‘low-ball’ medical unfunded liability estimates come from the 2010 Annual Report of the Boards of Trustees of the Federal Hospital Insurance Trust Fund and the Federal Supplementary Medical Insurance Trust Fund. They are the reports of the Medicare trustees of the US government. The 2010 estimates of US government medical unfunded liabilities have been shaved dramatically from their prior year reports.

And the Medicare trustees make the following remarks in that regard. They say that, “the Affordable Care Act [the recently passed healthcare legislation] improves the financial outlook for Medicare substantially. However, the effects of some of the new law’s provisions on Medicare are not known at this time, with the result that the projections are much more uncertain than normal, especially in the longer-range future… the actual future costs for Medicare are likely to exceed those shown by the current-law projections.” In other words, their low-ball estimates are based on such flimsy assumptions as to make them untenable.

And the record of government predictions and cost containment in regard to Medicare expenditures is anything but encouraging. As Gary Shilling, a US economist recently remarked, that in 1967 a special committee of the US Congress predicted by 1990 that Medicare would cost $12 billion. It actually cost $110bn. Quite likely the estimates of US government medical unfunded liabilities, by Richard Fisher and Professor Kotlikoff are nearer the reality, barring truly significant program cuts, changes and increases in taxes.

The US government’s Medicare program began in 1965. It primarily covers medical expenses for people over 65 years of age and for certain disabilities for people younger than 65. Medicare was envisaged as being able to pay its own way through payroll deductions, and for many years it did even more than that: it built up surpluses. However, in January 2011 the US Congressional Budget Office (CBO) showed that the cash flows of the Medicare trust funds had now grown significantly negative. Also, the CBO sees US government Medicare related costs jumping from an estimated “$870bn in 2011, or 5.8 per cent of GDP… to $1.8trn in 2021… and 7.4 per cent of GDP.”

Also, the US spends disproportionately higher on its healthcare than other developed countries, yet with frequently poorer outcomes. Mark Pearson, Head, Health Division, of the Organisation for Economic Co-operation and Development (OECD), made these written comments to the US Special Committee on Aging on September 30, 2009. He wrote that, “the United States spent 16 per cent of its national income (GDP) on health in 2007. This is by far the highest share in the OECD… Even France, Switzerland and Germany, the countries which, apart from the United States, spend the greatest proportion of national income on health, spent over 5 percentage points of GDP less: respectively 11.0 per cent, 10.8 per cent and 10.4 per cent of their GDP… For all its spending, the US has lower life expectancy than most OECD countries (78.1; average is 79.1).”

Further illustrating the enormity of the US healthcare spending problem, the US government’s Centers for Medicare and Medicaid Services (CMS) said that total US national health expenditure (NHE) “grew 4.0 per cent to $2.5trn in 2009, or $8,086 per person, and accounted for 17.6 per cent of GDP [up from 16.6 per cent 2008].”

Additionally, CMS found that US government Medicare and affiliated Medicaid 2009 program expenditures grew even faster at 7.9 and 9 per cent respectively, accounting for 35 per cent of NHE. The US federal government’s share of health care spending rose by just over 3 per cent in 2009 over 2008, to 27 per cent.

Reining in the growth of US federal government Medicare and related spending will require huge healthcare industry adjustments, spending cuts and continuing modification of government health funded programs. And it will probably require substantially increased taxes to fund its remnants. In recent polls by CNN/Opinion Research Corp Poll and Gallup, the vast majority of Americans said no to cuts in Medicare. A healthcare expense heart attack could be on the horizon for Americans.

Copyright alrroya.com

Posted in Economics | Tagged: , , , , , , , , , , , , , , , , , | 1 Comment »

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