Subsidies for the World’s Most Expensive Healthcare

Writing a market analysis for Citigroup’s weekly Portfolio Strategist newsletter, Steven Wieting outlines a dire future for America’s government debt. Note that this is far from a partisan magazine, it is a real-world analysis of possible scenarios for investors. An extensive excerpt follows:

§ Markets may still be overestimating the short-term vulnerability of the U.S. economy amid a strengthening and self-sustaining cyclical recovery. At the same time, the risks to U.S. economic performance in the long term have actually never seemed more dire.

§ Far from hoarding labor (unlike others), the U.S. has just endured the deepest two year decline in employment of the post war period. Signs abound that production, employment and investment declines have been unnecessarily severe, an overshoot. Friday’s data surprised with three consecutive months of private employment gains, with some confirmation in the separate survey of households.

§ But few had ever contemplated entering a well-advertised period of demographic weakening and higher dependency levels with a U.S. budget deficit so large as a starting condition.

§ The structural budget deficit looks potentially unmanageable even five years from now, when employment is assumed to be “full” and the financial supports of the recent crisis are paid back as fully as they ever will be.

§ Higher taxes have always seemed necessary to cover elder-care entitlements in the period ahead. But as a start, taxes are being raised instead to cover expanding entitlements further and can’t be used again for initial deficit reduction or offsets to future large increases in spending programs in place.

§ With the presumed passage of expanded subsidized healthcare coverage for nearly all in need, U.S. consumers, taxpayers and employers will have to buy more of the same healthcare goods and services sourced at the highest observable cost per unit in the world.

Unusual Digression in Short and Long View

On visits to clients across different parts of the world in recent weeks, we have continued to sense at least a worrying complacency with the long-term outlook for the U.S., against residual fears that the economy is incapable of cyclical recovery. In essence, many investors seem to overestimate cyclical vulnerability, while underestimating structural economic risks for the U.S. over the long run, in our view.

Far from hoarding labor (unlike others), the U.S. has just endured the deepest two year decline in employment of the post war period. Signs abound that production, employment and investment declines have been unnecessarily severe, an overshoot.

[…]

At the same time, the risks to U.S. economic performance in the long-term have actually never seemed more dire.

A demographic bulge in the dependency ratio has always loomed beginning in the early- to mid 2010s. That “bulge” worsens gradually for the following 25 years.

Few had ever contemplated entering this period with a U.S. budget deficit so large as a starting condition. This structural budget deficit looks potentially unmanageable even five years from now, when employment is assumed to be “full” and the financial supports of the recent crisis are paid back as fully as they ever will be.

Higher taxes have always seemed necessary to cover elder-care entitlements in the period ahead. But as a start, taxes are now being raised instead to cover expanding entitlements further and can’t be used again for initial deficit reduction or offsets to future large increases in spending programs already in place.

Following the recent political debate, many Americans might have come away with the notion that health insurance companies “charge too much” for healthcare. Perhaps the insurers need to hire their own cheaper doctors and build their own cheaper hospitals to compete with the existing supply of them. Assuming otherwise, they will still need to pay the same amounts for hospital stays, procedures and medicines as before, at the highest observable cost per unit in the world. But now, with the presumed passage of expanded subsidized coverage for nearly all in need, U.S. consumers, taxpayers and employers will have to buy more of those same goods and services, sourced from the same supply base.

Aside from small experimental steps to develop competitive exchanges for individual insurance coverage, never before have we seen a U.S. policy solution seem so detached from the underlying problem it purports to address. Americans want more healthcare, and will need more as the population ages. But the existing system fails in almost every way to match economic benefits with costs, obscuring them instead.

And while the latest reform effort purports deficit reduction over ten years, it does so on roughly six years of expenditures and 10 years of tax increases. More importantly, medical entitlements have never been “overpriced” into budget outlooks allowing for positive cost surprises (see Figure 11). The healthcare overhaul achieves the bulk of its purported spending cuts through limiting Medicare payments to doctors, hospitals and nursing homes, cuts that Congress has failed to pass through repeatedly since 2003, instead opting for more spending. Private insurers, meanwhile, would see some ostensible limits to their pricing, but generally would need to expand coverage, and purchases of healthcare services and goods.

In two places in the developing and developed world, laypeople mentioned to us that healthcare in the U.S. would now properly come for “free” for those unable to pay for it. If only that was true. Instead, future tax payers will have to come to grips with the costs of a system that for now is neither disciplined by competitive market forces nor rationed like other public welfare programs.

But if not in healthcare, rationing will take place in other places. Public education outlays for the future taxpayers have reportedly been a target of near-term budget constraints. While never free from waste, these are human resource investments that contribute to the future economic output. There are investments in the individuals who will carry the larger future tax burdens of the dependency bulge of coming decades.

We have been concerned for some time that a greater, unsustainable share of future entitlement outlays will end up deficit financed, with costs simply put off further into the future. At least that may be attempted. But among other concerns, lenders to the U.S. may feel less than certain about that stream of future income and output if incentives are so skewed against those who will need to provide it.

The Barbarian Conversion

Richard Fletcher [The Barbarian Conversion] notes that ancient Christendom was not monolithic:

In terms of custom and practice there were many churches in sixth- and seventh-century Europe, not One Church. Christendom was many-mansioned.

Fletcher talks about the motif of exile in the monastic expansion. Christians, following the writing of Augustine, saw themselves as exiles and pilgrims and then the monastics took this exile literally. They often left their homeland and people to found monastic missions amongst others. Fletcher says:

Pilgrimage, in the sense of ascetic renunciation of homeland and kinsfolk, is of special importance in our understanding of the phenomenon of conversion in the early Middle Ages. Pilgrimage merged insensibly into mission. The monasteries that were founded by the exiled holy men had something of the character of mission stations. It was not that they were established primarily among pagans; indeed, they could not have been, dependent as they were on wealthy patrons, necessarily Christian…for their endowments…But their monastic communities were situated on the margins of Christendom, and had what might be called “diffusive potential” among nearby laity who were Christian only in the most nominal of senses.

It seems to me that we could apply this same method to the diffusion of the faith in our day. Establishing tightly-focused communities at the margins of our society, for example in rural areas and urban areas that aren’t glamorous. Communities devoted to Biblical saturation, mission and learning which could aim to gradually convert the surrounding area.

Church Government = National Government?

I’m wondering if the church often reflects the governing paradigm of the world-empire that it is situated in. In Roman times this meant the highly-structured governmental organization that mirrored the Imperial government. In America it means a reflection of corporate governance, with the pastor as CEO and maybe a “board” with some other trappings of democracy. My impression is that even in the Catholic Church, democracy has invaded at the local level to a large extent.


James Jordan writes “One of the essential failures of the Protestant Reformation was the forfiture of a truly international ecclesiastical organization, and too close a tie of the church to national interests.”

Nidal Hasan and Secular America

I have written in the past about the coexistence of Islam and Secularism; (here and here for example). According to the Washington Post, Islamic murderer Nidal Hasan gave a presentation to the Army about which the Post says:

Under the “Conclusions” page, Hasan wrote that “Fighting to establish an Islamic State to please God, even by force, is condoned by the Islam,” and that “Muslim Soldiers should not serve in any capacity that renders them at risk to hurting/killing believers unjustly — will vary!”

Yes, will vary.

The Ft. Hood massacre exposes once again the fissures in our society. It is patently obvious that Hasan wanted to inflict death on Americans rather than being forced to go overseas and fight against fellow Muslims. But our corporate, government and educational elites have enforced diversity and tolerance from the top-down for decades now and cannot admit that this level of violence is happening. The reactions to the event are tired and predictable. Expect to see religion blamed in the abstract as a problem, or access to guns, or the wars themselves, not Islam.

A plain reading of the Qur’an reveals that Bin Laden and Hasan are living in closer harmony with the will of Allah revealed in the text than are those Muslims who do not resist the infidels. The response of most in the West is to talk about “Islamism” and “radical Islam” as opposed to the “peaceful” Islam that is the majority view. Clinton, Bush and now Obama engaged in this game. [An aside – where is the ACLU screaming for separation of mosque and state when the President of the USA takes it upon himself to decide which version of Islam is orthodox and which is fringe? In making these pronouncements the leaders of the “free world” are choosing between the different sects of Islam and are acting as official interpreters of which sects are orthodox and which aren’t.]

The official policy of state “neutrality” in religion is a thin veneer of lies that masks the official endorsement of Enlightenment secularism as the de facto philosophy of western nations. There can be peace so long as religion makes no ultimate claims upon the Almighty State and so long as people don’t take religion too seriously. Americans are just fine with religion as long as you don’t get overly serious about God. If you do, at that point you become a fundamentalist, Bible-thumper, nut, or some other pejorative term and you are marginalized.

Any Muslim who gets serious about his religion and reads the Qur’an may resort to violence. God sanctions it and indeed favors it. Christians who take their faith seriously would instead follow the example of Paul who was a model citizen to the point of refusing to flee his Roman captors on two occasions when he could have. BUT, Christians also have absolute truth claims and a body of law that informs how a nation, city or county should run. In this respect we are similar to Muslims or any other religion. Secularism will have none of this. All must be equally powerless and silent in the public sphere, keep your religion to yourself, your church building and your home.

The same folks who bring us Tolerance and Diversity also welcome mass immigration. I believe that their underlying assumption is that such immigration will destroy any chance of Christian hegemony and remake the nation in their weird image. If you think that’s a stretch, you should read this. But what they don’t seem to grasp is that a Muslim America would not have gay marriage and queer courses in college, it would demand submission. Perhaps a miscalculation on their part.

But the way in which they want to change this is to do to the Qur’an what German scholars did to the Bible – that is impose higher criticism on it and deconstruct it. What many people would like to see at the end of this is an Islam that is peaceful, works within the framework of the secularism that upholds America, and has a text that is not trustworthy and does not have to be obeyed.

Time will tell if this approach is successful or not. But Christians should be cautious about cheering these efforts on. The same high-handed approach that wants to neuter Islam also wants to (and has) emasculated Christendom, removing any threat to the State from a modern day Constantine. We have entire schools of thought and churches within Christianity that are FOR the separation of Church and State!

The answer to Muslims who want to kill at the behest of Allah is not more secularism, pornography, drugs and tolerance. The answer for them is to repent and believe on Jesus the Messiah. This is what we should work for and pray for. Hasan’s murders expose the illogical nature of our settled political order and one would hope that people would begin to think seriously about who we are and what we believe as a people. However, we have had plenty of warnings and thus far the elites and their tired ideology show no sign of cracking.

Election Day 10

It was a cool morning today as I voted down at the local fire station. Turnout was massively lower than last year. Last year people were coming out of the woodwork to vote for O or against him (in our district anyway). There were long lines and boisterous attitudes. Today there were two other voters.

The Democrats didn’t even bother to field a volunteer today handing out sample ballots! That surprised me, it was a first. The GOP was there with one guy, and he looked lonely. So all the enthusiasm is out of the season now that George Bush, the sacrificial victim has been driven out and we are back to the norm, which is dysfunction, debt and war with no one to blame. It isn’t yet the fault of the Chosen One, but it will be by 12. He’s looking more like LBJ and Carter by the minute.

I expect Deeds to lose in a blowout. Let’s hope this is a glimmer of good news for the unborn.

Mind your own business

Thomas Fleming deconstructs the central myth of many conservative Republicans:
To explain the decline of American Christianity, conservatives continue to cling to the myth of a nation settled by pious believers seeking to found “a shining City on a Hill.” But this republican Eden, on which God has uniquely bestowed his blessings, was corrupted by the Tempter. The American people are still, for the most part, good and faithful Christians, but they are under assault from immoral Hollywood movies, wicked journalists, and pointy-headed intellectuals, etc. Setting aside the obvious problem of equating New England (particularly the worst aspects of it) with all of America, we should ask ourselves this: Could men and women of strong faith really be corrupted by Hollywood movies that no Christian has any business going to see? Can you imagine Saints Peter and Paul attending the premier of Kill Bill or Saint Monica watching Lost with little Augustine? If America were, in fact, a basically Christian or moral nation, Hollywood would be out of business, and so would most colleges and universities.
Conservative Christians are right to complain that they are being persecuted by the government, and I do not have a solution to this grave problem except to suggest that they are wasting their time in trying to change the laws. Instead, they might consider the example of early Christians living under the pagan Roman Empire. Most Christians paid their taxes to Caesar, served in Caesar’s army, and were good neighbors  and loyal citizens of Caesar’s empire. They did not engage in futile protests about infanticide, nor did they abuse and insult their pagan neighbors. They minded their own business, went to church, and prayed for the empire’s conversion. If today’s American Christians had the faith of a mustard seed, they would spurn the false prophets who have enslaved them to a party or political ideology and go about their Master’s business.

Thomas Fleming deconstructs the central myth of many conservative Republicans:

To explain the decline of American Christianity, conservatives continue to cling to the myth of a nation settled by pious believers seeking to found “a shining City on a Hill.” But this republican Eden, on which God has uniquely bestowed his blessings, was corrupted by the Tempter. The American people are still, for the most part, good and faithful Christians, but they are under assault from immoral Hollywood movies, wicked journalists, and pointy-headed intellectuals, etc. Setting aside the obvious problem of equating New England (particularly the worst aspects of it) with all of America, we should ask ourselves this: Could men and women of strong faith really be corrupted by Hollywood movies that no Christian has any business going to see? Can you imagine Saints Peter and Paul attending the premier of Kill Bill or Saint Monica watching Lost with little Augustine? If America were, in fact, a basically Christian or moral nation, Hollywood would be out of business, and so would most colleges and universities.

Conservative Christians are right to complain that they are being persecuted by the government, and I do not have a solution to this grave problem except to suggest that they are wasting their time in trying to change the laws. Instead, they might consider the example of early Christians living under the pagan Roman Empire. Most Christians paid their taxes to Caesar, served in Caesar’s army, and were good neighbors  and loyal citizens of Caesar’s empire. They did not engage in futile protests about infanticide, nor did they abuse and insult their pagan neighbors. They minded their own business, went to church, and prayed for the empire’s conversion. If today’s American Christians had the faith of a mustard seed, they would spurn the false prophets who have enslaved them to a party or political ideology and go about their Master’s business.

Imperial Implosion

Bill Bonner writing at the Daily Reckoning says:

Our old friend Marc Faber is “highly confident” that things will turn out badly.

“The future will be a total disaster, with a collapse of our capitalistic system as we know it today, wars, massive government debt defaults and the impoverishment of large segments of Western society,” he writes.

“We have a money-printer at the Fed,” he continues, “which guarantees runaway inflation, wholesale debasement of the dollar, and a major lowering of living standards for most Americans and many Europeans as well.

“Meanwhile, Paul Volcker says that China’s rise merely ‘highlights the relative decline of the US.'”

So there you have it: China on the way up, America on the way down.

That’s the drama that we’re watching every day, here at The Daily Reckoning. In our view, the peak of US wealth and power probably came during the period between the fall of the Berlin Wall and the fall of Lehman Bros. But there are probably a lot more shoes to drop before people are fully aware of what is going on.

The way we see it, almost the entire 20th century was a mistake…a dead end.

Europeans were clearly on top of the world when the century began. Then, after WWI the Europeans in America took the lead role. But WWI shook their faith in their evolving political order. Not long after, the German hyperinflation and the Great Depression shook their faith in their economic and financial order. This left a huge vacuum, which was soon filled by ruthless adventurers and ideological schemers. Much of the rest of the century…from ’39 to ’89…was spent in hot wars and
cold wars against these Bolsheviks, Fascists, Stalinists and Maoists.

In the end, the more reasonable and consensual societies of the West won the battle. But they, too, were transformed by 50 years of war and nearly a century of bad ideas.

“Whoever fights monsters should see to it that in the process he does not become a monster. When you look into the abyss, the abyss also looks into you,” Nietzsche warned.

Looking into the abyss created by Mussolini, Hitler, Tojo, Pol Pot, and the rest, Western societies decided both to fight them…and to join them. Tax rates soared. Regulations multiplied. University professors taught socialism, Freudianism, modernism, cubism, feminism, racism…and every other ‘ism’ they could think of. Parents spent good money to spend their children to universities that turned them into mush-heads.

And – perhaps most ominous – in the United States of America, the military grew into a greedy, grasping goliath…the very thing Eisenhower had warned against.

Then, there were counter-trends in the ’80s…led by Margaret Thatcher in England and Ronald Reagan in the United States. But these were mostly frauds. Top marginal tax rates were rolled back. And there were some cuts in regulatory procedures. But government spending tended to go up anyway. Worse, Ronald Reagan mistook the Soviet Union for a genuine threat and increased military spending even further to combat it.

And now, the United States staggers under the weight of its eternal wars…its imperial illusions…and its everlasting efforts to provide bread and circuses. If it kept its books like a private enterprise, it would be broke. If it were a public corporation, it would be de-listed.

Still, it spends and spends…and there is no stopping the spending. Trillions are spent on wars in Iraq and Afghanistan, for no apparent reason. But who complains? Too much money is at stake. There are too many lobbyists for too many industries and too many special interests involved. Military spending – even in a time when America faces no substantial challengers – cannot be rolled back. Neither can social spending.

Marc Faber is right. There too, there are too many people with too many dogs in this fight. Both military and social spending will continue to expand until the empire is ruined.

The New Dark Age

Writing in the February 2002 issue of Chronicles, Thomas Fleming says that we are already being ruled by the barbarians:

So the question is not whether American civilization will collapse but when – and what are we prepared to do about it. Until we are willing to give up the fiction that we are living in a decadent period of the Roman Empire – say, the reigns of Nero and Caligula – we can never appreciate our situation. The barbarians rule our world just as surely as they ruled Rome during the sixth century.

Up until a few years ago, I thought that Bubba might have a little fight left in him; but Bubba watches the WWF and the Playboy Channel, and his wife is on Prozac.

The Interview Project

I’ve been watching the episodes of the Interview Project by David Lynch as they are made available. My impression of America from the project thus far is what a depressing wasteland much of our country is. Dirty, untended, barren, bleak, and forlorn. Most of the west and much of the midwest is flat, unappealing and dirty. I’m glad for the cultivated parts and for man taking dominion over this land. Now if only we all had the Dutch passion for cleanliness.

Public School

Rushdoony on public school:

The public school is a substitute institution for the Holy Roman Empire and the Roman Catholic Church of the middle ages and is a thoroughly medieval concept. A single culture is demanded, and the public school must create it … a free and pluralistic society requires the abolition of the public school and tax support of the school in favor of a pluralistic education. The competitive aspect will ensure the quality of education, and the cultural implications of various faiths, philosophies and opinions can be given freedom to develop and make their contribution.