Tuesday, February 21, 2017

Repeal and Replace

Repeal & replace or repair. While there is importance to these words, they can be misleading. Sleight-of-hand is the tool of the magician ... and the politician and the subway thief. A band of entertainers enters your subway car and does magic tricks as their buddies relieve you of your wallet and other valuables. Those skilled at sleight-of-hand are never easy to anticipate and generate a lot of fun before they do their harm.

Repeal and replace gets the political base all fired up. Some people prefer to say repair but even that word elicits a political war cry. My eyes grow weary reading the endless minutiae. The Democrats will fight to the end over either repeal or replace. Republicans will argue the timing of the repeal and replace as if they were deciding which sit-com to watch first.

But stop sniffing a minute and realize that these words are there to inflame while the real issue is the improvement of the national healthcare system. D or R, we all believe that the system can be improved. Before Obama radically altered the system, most of us would have agreed that the system could be improved. And today, I think we know that healthcare isn’t perfect.

So why blab repeal and replace when what we all really want is improvement. Of course, we don’t agree on exactly what needs to be improved just as many of us held different opinions about Meathead in All in the Family. We are a nation of free thinkers. We love to disagree. Most bars would go out of business if we all agreed on everything.  

As we go about improving healthcare, it wouldn’t hurt to start out with some shared goals. We might not agree on the ways to reach those goals but let’s at least find some common ground. For example, most of us would agree that hospital gowns should have backs to them. No one likes a butt sticking out. And then there is the total avoidance of JD as a painkiller. That seems silly.

So now we have a place to start. Let’s move on. Another shared goal is access to healthcare. Let’s vote. Should we advocate limited access or wide access to healthcare? Everything else the same, let’s try to have a system that is available to most of us.

Second, let’s have a system that is affordable. Again it is easy to agree. Do we want a system that no one can afford, or do we want most people to be able to buy healthcare without selling the family's glug glug collection?

Third, to attain these goals we know there must be a mixture of market provision and government assistance. This is our tradition and is nothing new. We buy cars and cabbages in the free market yet we also have an extensive income supplement program for those with less capacity to purchase. We liberals and conservatives argue about the balance of market versus supplement but we pretty much agree that both are necessary.

Fourth, it doesn’t take Albert Einstein to understand that society must be able to afford this balance of market and supplement. Our hearts cannot rule our heads. Too much supplement doesn’t automatically make us Greeks but it could weaken our overall economic strength. 

Fifth, if the market is to provide healthcare then attention must be paid to the purveyors of healthcare – doctors, nurses, hospitals, insurance companies, pharmaceutical and medical device makers. There is no market without supply. Suppliers must want to provide their goods and services. At the same time, since parts of their earnings come from government supplements to the system, some supervision over their participation and prices is necessary.

Insurance will likely continue to be the basis of the healthcare system in the USA. Insurance markets exist in other venues – houses, automobiles, life and other financial products, and so on. Insurance has well-known principles. A major one is that many people pay into the system while others receive benefits. For example, good drivers pay for auto insurance each year and get nothing but piece of mind in return. But after some maniac who tries to change lanes with a margin of three feet going 90 miles per hour rams into you, then State Farm pays you to have your wrecked Lada replaced with a lovely Ford Edsel.

That’s the way insurance works. Some folks pay and some folks receive. If there are too few of the former and too many of the latter, then you have a problem. It makes absolutely no sense to let people enroll in insurance after they have a wreck. So any plan for health insurance in the USA will have to address ways to make people want to participate in the system when they are not ill. It seems to work for autos. I am not sure why we can’t find a way for healthcare.

It also seems related that people who find themselves out of a healthcare plan would be allowed to transition to another one. If someone has very serious conditions there should be an affordable way for them to find and keep insurance. Kids on parents' plans similarly need to be covered.

The above does not seem far out to me. Replace? Repeal? Keep your eye on the ball. We need a better healthcare system. Period. Healthcare reform always starts with something. Then you improve it. Now is no different from the past. Except for maybe the fact that people in both parties seem to have more fun screaming like banshees than actually doing something good for the country. 

Tuesday, February 14, 2017

Big Bang

Jimmy went in for his annual physical with Dr. Nolan. The doc shook his head and explained to Jimmy that he was going to have to change a lot of his habits: "Jimmy, you have a lot of things wrong with you. You are vastly overweight, anemic, diabetic, you smoke and drink too much, and your knees are about to go out under all the stress." Dr. Nolan suggested that Jimmy solve all those problems in one big bang. He would have to cut down on his visits to the Varsity, quit eating Key Lime pie, eliminate his 5 pm JD, quit smoking, and most important, eat more spinach, do more burpees, and have two knee replacements.

Jimmy was stunned. While he was willing to change his lifestyle over time, moving quickly on these fronts seemed impossible. How can one eat more spinach and not follow it with at least a tiny mouthful of luscious pie? And how can a human being cut out a daily ration of chili dogs without at least one puff on a cig or washing it down with a little JD? Worse, how does one do burpees without fully operational knees?

Dr. Nolan was insistent. "Jimmy, all these vices are connected. If you make headway on one, then you will just fall backwards on another unless you attack them simultaneously. Sure it will be rough for a while. But once you get past the first days, you will begin to feel like Melissa McCarthy on steroids." Jimmy replied, "Yes, Doc, but trying all that stuff at once might just demoralize me, and I might not even make it to my next appointment. And by the way, Melissa McCarthy is a woman."

Enough foolishness? I don’t think so. The idea of big bang versus gradualism is worth discussing in light of our new government’s volley of shots aimed at our country’s problems. I don’t have to repeat it all here but we have seen and heard policy announcements in many areas – healthcare, bank regulation, environmental regulation, tax reform, infrastructure, and so on. The rationale is that we have deep problems that are worsening. The explanation is that we cannot wait to attack these problems. Since many of these problems are related, it makes no sense to prioritize, because failure to move in one area means new policies in other areas will not succeed.

Is policy in 2017 like building a house wherein one must start with the foundation before erecting the walls? Or is policy more like making an omelet where you throw in all the fillings more or less simultaneously?  

Much was said about a big bang after the Soviet Union fell. Many countries were freed from Soviet policies and decided to move away from a socialist economic framework to one that was more capitalist. Some, like Poland, wanted to move quickly on many fronts. Hungary took a more gradual approach. (Hungary and Poland were not in the Soviet Union but were under its influence.) Others went even slower. I just read some of the economic analysis of these programs and policies and now have a headache. As you might expect there is no silver bullet to transformation. How one approached economic transformation depended on a lot of things including the nature of each country’s specific problems, its culture, and its history with socialism.

Countries that moved quickly and forcefully experienced very negative short-run effects including large recessions and high unemployment. Some that took gradual approaches avoided some short-term pains but followed a slower path to eventual stronger growth. It has been a quarter century since all that started, and the truth is that transformation goes on in most of the former Soviet sphere. The Baltic countries (Latvia, Lithuania, and Estonia) and Russia are the only countries to have annual real per capita GDPs of close to $20,000 per year. The rest are much lower.

The radical changes necessary to move from Soviet to market economies dwarf the changes going on today. Nevertheless, the experience of big bang is helpful. First, while there is some precedent for moving quickly on many fronts, there is also the recognition that gain may follow considerable pain. So one question is whether or not America in 2017 can tolerate a step backward. Second, much depends on the severity of the problems. Severe problems may be more entrenched and difficult to dislodge. A second question, then, is how bad are today’s problems in the USA? Third, results depend on history and culture. A past with experience in competitive markets helped places like the Baltic countries once they were freed from the Soviet Union. A third question: do US voters want to return to less government and more reliance on markets?

Are our economic problems in the USA today bad enough that people are willing to take a step backward to move the economy forward? Or do we even think these new policies are on the right track? It looks like a new big bang is about to start. The dust is about to fly. 

Tuesday, February 7, 2017

Trade

You don’t grow bananas or manufacture your own shirts, and Bill Gates doesn’t do his own typing. That’s called the benefits of trade. There was a day when people were mostly self-sufficient. Families grew their own crops, chopped wood, made their own clothing, and so on. But we don’t do that anymore. True, we are all getting fatter as a result. But we are also getting richer too.

The change from self-sufficiency to trade came gradually, and now we don’t think about it. Today is an age of specialization and trade. Most of us are plumbers or accountants or bartenders. We earn incomes at our specializations and use our incomes to buy whatever we need or want. In Tuna’s case, that would mean luxurious vacations for Pat. We don’t think of it this way but what we are doing is benefiting from the activity called trade.

We benefit from trade mostly because of what some whacked out economists call comparative advantage. Bill Gates is really good at what he does for a living. Suppose he is worth $1 million dollars a day in the marketplace. Should he do his own typing? I think not. If he spends a day typing, he loses $1 million and gains the average wage of an administrative assistant. It wouldn’t make sense. And of course, trade doesn’t just help Gates. Some people cannot make business decisions and are not valued at $1 million a day. Some people are really good at being an administrative assistant. Those people are delighted that Mr. Gates needs their services. They happily trade with Bill Gates.

It is true that the administrative assistant might earn $30,000 per year. But that person cannot pawn himself off to a company for more. That person is probably quite happy to find employment for what he is good at. In trade, people willingly enter into agreements, and both parties are advantaged by it. This goes on every day. 

We live at a wonderful time when all we have to do is want something and someone else is there to make it or sell it to us. Of course, we have to uphold our end of the bargain and make sure people value what we do, so we can earn the money to buy all those other things.

That’s pretty simple. But it all goes haywire when we go from talking about Nathan and Christina to similar trade between the US and Mexico. You see, trade is trade, whether it goes across a national boundary or not. The same principles apply. Nations have always traded. Even dinosaurs traded. Trade works because a nation can produce and sell things in which it has an advantage and buy things in which it has no advantage. In doing so, all countries benefit.

Back to benefit. Recall Bill Gates and his administrative assistant. Both of them enter into an agreement willingly and gain from it despite the fact that one is a lot richer than the other. Some people believe that some countries are always harmed by trade. These countries are poor and get taken advantage of. That may sometimes be true but what is also true is a country’s poorness often gives it great advantages in trade. Think of why we richer nations buy things from places like Vietnam. We buy because they have learned production techniques and combined that mastery with employees who are used to living on very low incomes and wages. It might not seem fair to some of us, but if you are from such a country and a new trade deal makes you MORE valuable, you are less inclined to envy the rich and more inclined to take advantage of a higher income and standard of living and perhaps better job security.

Trade is good and makes both parties better off even if it doesn’t make them equal. The problems come when one or more of the parties to trade receive actual benefits that are less than expected. Unintended effects of trade can occur for many reasons. Some reasons are real and can be addressed. Other problems are made up or simply contrived for political purposes.

For example, Bill Gates might suffer business losses because of a new competitor. He might blame his administrative assistant despite the fact that the assistant was not the real problem. So he reduces the wage of his assistant or fires him. Clearly, if the real problem is a new business competitor, firing the assistant accomplishes nothing and sooner or later we find out the truth of the matter.

In the US today, we are rethinking trade. We have trade deficits with the world and with specific countries. We are about to say “You are fired!” to these trading partners. How much of these trade deficits are in fact the direct results of freer or unfair trade? How much are caused by ourselves, or at least things out of control of our biggest trading partners?

I don’t have all the answers but I can offer a few. One answer comes from macroeconomics. We in the US love to spend. We love to buy goods and services. Apparently we can’t make enough to satisfy our love of buying, so we have to import. Maybe if we saved more that would help. Furthermore, we find ourselves in a time when the US economy, despite a lumbering pace, looks stronger than many of our trading partners. We have more ability to buy from them than they from us. None of this has to do with cheating, and none of this argument can be solved by US protectionism.

Another answer has to do with a realistic assessment of economic transformation in developing countries. When we made trade agreements with these countries, we made them with the full knowledge that they were transforming. Transformation is neither easy nor quick. When the Soviet Union collapsed, I recall economists saying that it would take 30-40 years for countries like Poland (not in the Soviet Union) and Latvia to approach rich country status.

What’s the hang-up? The problem is that subjecting a country that was centrally planned for decades to the rigors of competition is rough. You can’t wave a magic wand and privatize very inefficient companies that have little experience with competitive markets. Likewise you can’t overnight liberalize prices of all goods and services when many prices were kept at a very non-economic low.

Rapid privatization of companies can lead to large-scale unemployment and liberalization of prices can cause drastic increases in prices. Any country engaged in these and many other transition policies understands the social/economic upheavals associated with change. Nevertheless, they do it because of the eventual benefits transformation promises.

Richer countries know this, and trade agreements were made with the understanding that many of our important trading partners have government-owned companies and government control over prices, wages, and many other things. To say today that country X unfairly subsidizes its industry Y makes no sense. The word subsidize makes no sense in the context of a transforming nation.

Are we all wrong and are they all right? No. Maybe we do need to reopen some trade agreements. After all, some of them are old, and times have changed. But in doing this we need to remember a few things. First, some of these problems we bring on ourselves because we probably won’t ever produce enough to satisfy our appetite for goods and services. Second, some of the problems will go away when economic growth in other countries returns to something more normal. Third, developing countries are still developing. They have very low incomes. They are in transition. 
Putting unrealistic pressures on them only weakens them. We don’t gain by weakening the people who we want to buy our goods.

Trade is good. Trade agreements can be reopened. But there are clear limits to what can be accomplished without changes in our own domestic policies.