is there any actual person who feels terrorized by something that is exclusive to Republicans?
Shut down of the US government?
So are Republicans now openly terrorists?
by Simon 369 Replies latest social current
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BizzyBee
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Berengaria
There are real life consequences for many.
With shutdown, no way to apply for a last-resort cancer treatment
- New York Times
Friday, October 4, 2013 11:01am
A Cape Cod, Mass., man's last-chance treatment for cancer has been postponed by the government shutdown because new clinical trials cannot begin until they are registered on a federal website, which has been forced to stop processing applications.
Leo Finn said he had his bone scan canceled at Dana-Farber Cancer Institute in Boston on Wednesday, and the 48-year-old father of three is now unlikely to receive an experimental drug for his metastatic bile duct cancer next month as he had expected.
"It's been devastating for me and for my doctor, who was really excited about this drug," said Finn. "My idea is to get the word out that this is happening, since there may be other patients in the same situation."
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DogGone
I apologize to all for the length of this post. If you aren’t following my conversation just skip it, please.
AndDon’tCallMeShirley:
There is no money to pay for it!! Again I ask- why is this so hard to acknowledge? I anticipate very acerbic responses that ignore what I've just said. What would be appreciated is this: if someone can demonstrate mathematically why I'm wrong, go ahead. I'd appreciate the insight. There is no money to pay for it!! Again I ask- why is this so hard to acknowledge?
You have a great Canadian comedian as your avatar, which made me like you off the hop. Therefore, when you said you would appreciate if someone could point out how it was going to be paid for I took you at your word and thought your request was in good faith.
I don’t know if the ACA is good or bad. Whatever it is, it is nothing like what other countries are doing with healthcare. To me it looks like a giant social experiment and I hope it works out well. But, I get objections to it, I really do.
However, when you asked for mathematical answers and not “speculation and daydreams” I thought you may not be aware of the CBO projections (which were referenced earlier by another poster). So I provided them thinking, even if you didn’t agree, you would at least acknowledge the CBO is not full of wild speculators and daydreamers.
In response you stated that there “was no budgetary offset” and that the “ACA will be more expensive than projected”. You then selected some quotes that, even when I read them now, seem to indicate that you understood the federal deficit implications to be what Fox quoted as the “full accounting of the bill ... $2.6 trillion”. I say that because you reiterated that you were asking “how a broke government is in a position to support a program it can’t afford”.
Did I read you wrong? What did you mean to illustrate by those quotes?
You see, when I read the Fox article and noted right there in paragraph 13 that it will reduce the deficit, even by $81 billion more than thought the year before, I figured you must have missed the equivocation in the article on the use of “deficit”. I gave you the benefit of the doubt, after all why would you post an article that agrees with me to challenge the CBO report I posted?
Then there was the strange fact that you brought up that the projections had been revised. Odd, because the Fox article was from March 2012 and the CBO projections I linked were from May 2013. Even more odd when the bold subheading in the CBO article said “The Estimated Budgetary Impact of the ACA’s Coverage Provisions Has Changed Little on a Year-by-Year Basis Since March 2010” Strange to respond to the May 2013 CBO projection with a March 2012 Fox article and then state the “CBO numbers have been revised”. I assumed that maybe you had not read it.
Did I read you wrong? What was the point of referencing the March 2012 CBO segment as a response to the May 2013 CBO article I referenced?
Still, I was being charitable, I thought that the Fox article was sly and anyone who wasn’t reading it carefully would think it was saying the federal deficit was going to balloon. I thought you would appreciate having that pointed out. I thought you must not have read the whole article or the CBO projections it is talking about. So, I asked if you had read it. I even quoted the critical paragraphs from the CBO projection.
Let’s be clear, this is not about a difference of opinion. All of us, Fox and Sessions included, were talking about what the CBO projects. One doesn’t have to fall back on opinion here because the CBO is kind enough to put their projections right there on the web. I thought I would explain how you might have mistaken the Fox news article and how it was deceitful, in my opinion. Since you said you would appreciate seeing how the ACA would not bankrupt the country, I thought you would be, well, appreciative.
Still, if that wasn’t fulsome enough I provided charts to show what the debt and budget are projected to look like. I think this is really good news. I think the US has made some amazing changes. In 2009 I was VERY worried about you! If you go down the tube, so do we Canucks!
Then, after all of this, you said the Fox link you posted was pretty self-explanatory and maybe I should read it again... huh? Please, if you are being sincere and not just having sport playing with me, explain what you think the Fox article says?
You then link to an April 2012 Forbes article which, to your credit, does not agree with the ACA costing in the CBO report I linked earlier. I admit, by this point I was getting a bit exasperated because you did not engage in any of points I had brought to your attention.
However, the Blahous critique is substantial and deserves a full treatment and not my glib reply. So I go back on my declaration to bow out. If we use the Blahous method the ACA will cost much more, true, but only because government program spending is dramatically cut. In other words, it works out better for the overall deficit and debt picture! Why? Because the ACA will cost more but all the expenses in Medicare will reduce and disappear! Rejoice! If the CBO scenario turns out true you can see that the baseline is healthy. If Blahous is right the deficit will go down even faster! Again, this is not opinion, this is what is stated if you carefully read what is written in what you posted.
How? Because using his accounting you cannot count on Medicare payouts existing after the trust fund cannot cover 100% of the costs. If there is no Medicare than you can’t very well save any money on it, like the ACA promises. True, but then you are not spending any money on Medicare, so the overall effect is a much smaller deficit! Does anyone actually think Congress will just let Medicare die? No, Congress will keep having the American tax payer foot the bill. Blahous’s response is in the article you linked: “It’s the law. Some may not like the fact that Medicare can only spend money to the extent that it has a positive balance in its trust funds, but that’s the law.” Note how he explains it, “The finding that the ACA reduces the deficit depends on the critical assumption that Medicare will always pay out full benefits whether there is anything in its trust fund or not.”
So he removes the cost savings to Medicare in his mathematics. Law ties Medicare benefits to the trust fund Americans pay into. The CBO assumes Medicare will continue and that Congress will ensure Medicare continues paying out full benefits even if the fund no longer covers 100% (since the taxes into the fund have been less than the money coming out - for some time now). So, we have three scenarios:
- CBO is projecting numbers with the ACA and the good old American Tax payer footing the bill for Medicare. It says, comparing a world where Medicare keeps going and there is no ACA to a world where Medicare keeps going and there is the ACA you can see deficit savings projected.
- Blahous interpretation #1 is that Medicare discontinues and the ACA exists, thus proving the ACA saving projections on Medicare a lie. (But, an overall smaller deficit!) Comparing a world with Medicare and no ACA to a world with the ACA and no Medicare (or less Medicare) the deficit is smaller but the ACA is more expensive.
- Blahous interpretation #2 is that Medicare will be funded, but you need to add that on top of the ACA. He says, comparing a world where there is no Medicare (or less Medicare) and no ACA to a world where there is both and you can see a huge deficit difference. (though the same federal deficit, of course, as #1) - in effect, the savings on Medicare from the ACA go to keeping the Medicare fund solvent. The beans move from one program to another.
Blahous says since you can’t “double dip” - you can’t count the savings dollars of a program that isn’t funded under current law. You can’t both assume the savings of Medicare without assuming the costs, as it is not going to continue under current law unless the fund is topped up.
OK, that does make the ACA more expensive if you look at it that way, if you stack the future Medicare dollars on top of the ACA. I can see that. Strange. But OK.
If you are following the point, though, you will see that #1 and #3 have the SAME budgetary impact. He isn’t arguing with the CBO federal budget projections. He just says that since the ACA assumes Medicare will continue you have to add that program cost to the ACA costing OR you can’t assume those Medicare savings when talking about the ACA.
I’m not expressing an opinion about whether he is right or wrong, I’m pointing out how he arrives at his numbers.
Now, to your point, about how all of this can be paid for…. The overall deficit is either the same (#1 and #3) as the CBO projected or it is much better (#2). You can move beans around in jars but you still have the same number of beans.
You also make another popular mistake, you state that Blahous was appointed by Obama. He was not. He was appointed by Bush and was a hold over for a few months while the new administration was brought in. (http://en.wikipedia.org/wiki/Charles_Blahous) Not that it matters to the substance of his argument.
I understand there are different viewpoints, for sure. But all the articles you have put up point to the same conclusion that I was trying to make to you – the overall solvency of the Government is not threatened by the ACA. They look at different ways of adding up the ACA costs, for sure. And I haven’t disagreed with a single calculation. The Fox article is right about the cost (deficit) side of the ledger (but is not clear about the word deficit). Blauhous has an interesting way of adding up the ACA costs. But, with the exception of Blahous’s concern Congress will not fully enact the bill, there are no differences in what I have noted about the effect on the Federal Deficit in anything you have put up.
The Federal Budget looks better with the ACA than without it, unless you pull Medicare out of the budget all together, in which case the Budget looks rosy, indeed!
This is what I mean about engaging an article you link. I have no objection to your posting quotes from articles or links to articles. I object when you do so and then retreat from the discussion about what those articles actually say. What the ideas within them mean.
As to how the entire debt can be paid off… I’m not your monkey. I answered your original request in good faith.
It’s ok, because I was at the hockey game tonight and my team won in overtime… I couldn’t possibly be in a better mood!
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DogGone
Could have saved myself some time. Here is a good explanation of Blahous complete with graphs: http://crfb.org/blogs/affordable-care-act-and-hi-trust-fund
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sammielee24
Whether or not the CBO reports they can pay for all the outgoing costs associated with the ACA including the expanded Medicaid payments for the next few years - the CBO can only report using the limits created by the period of time they write the report. If the debt ceiling continues to rise to allow for more debt, the limits rise accordingly. Get rid of the debt ceiling and simply take on debt without reporting and notice is one option - or examine the limits of debt and adhere to the budget and look to reduce the debt. If the debt exceeds the ability to pay tomorrow if it were all due - you are essentially broke. This is especially true if your debt is held by foreign interests - if they call in the debt - you go to the Federal Reserve to raise the limits another 10 trillion to pay off the debt - those trillions plus interest are going to be paid by generations over the next 100 years. Should the next generation have to pay for the increased debt? This question reminds me of another one - Germany paid off their debt to the USA/France/UK in 2010 - a debt owed from WW1 and that was placed on them by the US/France/UK as punishment and penalty for their causing the war. Reparations certainly didn't go to the families of those who actually fought and died or were wounded, orphaned, widowed in that war - many of them lived in poverty and in ill health - but WW1 payments just ended. Should those who were not born 80 years later, have been responsible for paying that debt? Money that went more to corporations and politicians and private investors? Anyway....sammieswife
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CBO: Obamacare Will Spend More, Tax More, and Reduce the Deficit Less Than We Previously Thought
WASHINGTON, DC - SEPTEMBER 13: Congressional Budget Office Director Douglas Elmendorf testifies during a hearing before the Joint Deficit Reduction Committee, also known as the supercommittee, September 13, 2011 on Capitol Hill in Washington, DC.
Earlier this week, the Congressional Budget Office released its revised estimates of what Obamacare will cost, now that the Supreme Court has weighed in. As I read the report, it occurred to me to ask: how have the CBO’s estimates changed over time? It turns out that, even when you compare the years that are common to each CBO report, a clear trend emerges. Today, the CBO believes that Obamacare will spend more money, raise more tax revenue, and reduce the deficit less than the agency thought in 2010. And things could get worse.
Be warned: this article contains a lot of numbers. If your eyes glaze over reading numbers (as mine do), focus on the charts. The charts tell the story of how the CBO’s estimates have changed over time.
Introduction
For the purposes of this analysis, I looked at three sets of CBO projections: (1) the March 20, 2010report that was published hours before the final Obamacare vote in Congress; (2) the February 18, 2011 report estimating the deficit impact of repealing Obamacare; and (3) the July 24, 2012report estimating the deficit impact of repealing Obamacare after the Supreme Court ruling.
The first report looked at the fiscal impact of the law from 2010-2019; the second from 2012-2021; and the third from 2013-2022.
Hence, there are two ways to compare the three reports: first, an apples-to-apples comparison of the seven years (2013-2019) common to the three reports; second, by comparing the total ten-year cost of the law reported in each case, to show how the law’s costs increase over time.
There are small technical differences between the first report and the next two, because repealing Obamacare is different from passing it. But these three reports are the ones that go into Obamacare’s fiscal impact at the level of detail I needed to conduct this analysis.
Spending projections for 2013-2019 have increased by $124 billion
In 2010, the CBO estimated that Obamacare’s spending on new programs would amount to $929 billion from 2013-2019, and a ten-year cost of $944 billion. Those figures increased to $956 billion and $1,442 billion respectively in 2011, and $1,053 billion and $1,856 billion in 2012.
By “spending on new programs” I mean all the spending in Obamacare on new programs, principally the cost of expanding coverage via Medicaid and the new exchanges. These figures don’t include the cuts to Medicare, which I will discuss later.
What’s remarkable is that this increased spending comes despite the fact that the CBO estimated that state cutbacks in the Medicaid program, in the wake of the Supreme Court ruling, would reduce government spending by $84 billion from 2012-2022.
In 2010, the CBO estimated that Obamacare’s tax increases would amount to $626 billion from 2013-2019, and $631 billion over ten years. In 2011, the CBO estimated totals of $624 and $968 billion, respectively.
In the most recent report, the CBO projected a 2013-2019 total of $672 billion, and a ten-year total of $1,221 billion.
Revenue projections for 2013-2019 have increased by $46 billionNote that these totals exclude the impact of the exchange subsidies, which are tax credits and therefore get scored by the CBO as “reducing taxes” even though they functionally are spending measures. The revenue increases in the law include revenues from the individual mandate; the employer mandate; taxes on insurers, drugmakers, and medical device manufacturers; and, most importantly of all, the “Cadillac tax” on high-value insurance plans. As you will see in a later chart, the “Cadillac tax” is the most important component of the law’s taxation features, without which Obamacare would not achieve anything close to deficit neutrality.
Medicare cuts for 2013-2019 have decreased by $59 billion, but ten-year cuts now total $743 billion
One of the interesting aspects of this analysis is what happens to the law’s changes to Medicare. As you may know, the law as passed used $454 billion in cuts to Medicare and Disproportionate Share Hospital payments to fund the law’s expansion of insurance coverage. But those cuts were measured from 2010-2019; the most recent report, measuring cuts from 2013-2022, totals $743 billion in reduced Medicare and DSH spending relative to prior law.
However, in the 2013-2019 period, the CBO now projects that the law will cut Medicare by $384 billion, compared to $443 over the same period in the CBO’s original 2010 estimates. This is because the Obama administration has postponed the law’s mandated cuts to Medicare Advantage, and also because Congress has instituted “doc fixes” that have kept Medicare spending higher than what is specified in current law. These procrastinations mean that future Medicare cuts are more draconian than the ones previously projected.
Deficit reduction for 2013-2019 has decreased from $140 to $4 billion
These three features of the law—the increased spending, the increased taxation, and the smaller near-term Medicare cuts—combine to eliminate nearly all of the projected “deficit reduction” in Obamacare from 2013-2019. In 2010, the CBO projected that Obamacare would reduce the deficit by $140 billion from 2013 to 2019. That has dropped to a measly $4 billion in its most recent report.
The ten-year totals have gone from $143 billion in 2010 to $210 billion in 2011 and $109 billion in 2012.
The “Cadillac tax” is the linchpin of Obamacare’s deficit-reducing credentials
The key to understanding the long-term deficit impact of Obamacare, from the CBO’s point of view, is to understand the “Cadillac tax.” As a reminder, the Obamacare “Cadillac tax” imposes a 40% excise tax on the relevant premiums charged by any insurer that, beginning in 2018, offers a health insurance policy whose value is in excess of $10,200 for individual coverage and $27,500 for family coverage.
Because the CBO assumes that the cost of health premiums will continue to rise at a much faster rate than inflation, the Cadillac tax affects more and more individuals over time. The long-term deficit neutrality of Obamacare hinges on this trend continuing for a long time. As you can see in the below chart, removing the Cadillac tax from Obamacare wipes out the CBO’s estimates of the law’s impact on the deficit.
This is important, because a key feature of Republican plans to replace Obamacare is to adopt a fiscally similar provision to the Cadillac tax: astandard deduction or universal tax credit for purchasing private health insurance. Hence, insofar as supporters of Obamacare claim that repealing the law would increase the deficit, pairing repeal with a standalone reform of the employer tax exclusion for health insurance is a simple solution.
What will the CBO say next year?
Here’s what we don’t know: how will the CBO’s estimates change next year? Will we see a continuation of the trend toward higher spending, higher taxes, and more deficit spending? We might. And that is exactly what the law’s skeptics have feared all along.
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DogGone
Sammieswife,
One small point, it is adhering to the budget that creates the need to raise the debt ceiling. But, yes, I agree with your overall point, unchecked it just keeps growing. That is why I think the budget is the right thing for the Republican to use to fight for cost reductions, not the debt ceiling. As such, I wouldn't call them anything like terrorists. (Please don't do this on the debt ceiling, Mr Speaker, please!)
China's currency would rise dramatically if they called back the US debt. But, it is a power point of leverage they have. Just a correction, if China dumped the debt it would not create more debt. It would cause the treasury to have to buy the debt, thus dramatically increasing the monetary supply, thus leading to crazy inflation. Hence, the US currency would tank and the Chinese currency would rise - dramatically. In that case manufacturing would flee back to America. If this happened suddenly the disruption to the economy would be so large, I can't fathom it!
To your point about the next generation, yes you are right. Rising debt (as a percent of GDP) is passing the buck to the next generation. Inflation is punishing todays savers (a tax in a different form). Great example bringing up German reparations. It is interesting because modern economists do not agree with Keynes and the old view that the reparations (80+% of GDP) were too high a burden. What caused Germany problems was their aversion to raising taxes, recent economists say. Germany chose not to raise taxes in 1914 to pay for the war. It is argued that they chose not to pay back the money. they printed money instead of raising taxes. (ref: http://en.wikipedia.org/wiki/World_War_I_reparations).
Thank-you for posting that article. I found it very informative. Interesting how the exchange subsidies are scored. That was news to me. It was also news to me that the Republicans also propose a similar mechanism as the Cadillac tax.
Here’s what we don’t know: how will the CBO’s estimates change next year? Will we see a continuation of the trend toward higher spending, higher taxes, and more deficit spending? We might. And that is exactly what the law’s skeptics have feared all along.
Agree. It is no mystery how it will be paid for, taxes and deficit spending. The CBO has upped the revenue projection from the ACA. If you are fighting for lower taxes this has got to be concerning. Also, those federal deficit reductions reverse if those revenues are projected down and/or either the costs go up or savings go down. Great points.
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MeanMrMustard
DogGone,
Thank-you for your congratulations… I’m not looking forward to the sleep deprivation…
Actually, I shouldn't say that. It really depends on the baby. Is this your first? Our current newborn is #3. She is doing very well with her feedings (gained back all the weight she lost in the hospital), and at times sleeps for stretches of six hours. If this is your first, I don't want to freak you out or anything.. :) I am losing more sleep because I juggle the family with three jobs.
Thank-you, also, for your excellent post. It is certainly working my faculties.
Same here. I have to say that I think I see more clearly where we view things differently.
That is why I mentioned that I had equivocated between a specific item and the category. I’m going to clarify that statement to get at what I mean. Food items normally do conform to the law of demand. Many healthcare items and many healthcare services do not. What do I mean by normally? Normally means absence a general famine. When there is not a famine the substitution effect takes over and reduces quantity. Tomatoes are too expensive so I buy apples. In many, but not all, cases the substitution effect is largely absent from healthcare items and services. If a bone marrow transplant is needed I cannot choose a hip replacement instead.
Ahh, I see what you mean now. And I agree we should stay away from mixing the entire industry (healthcare) and a single product (tomatoes). I'm with you on that. But there are points of disagreement. But first, another point of agreement. I believe we are on the same page in regards to natural disasters, things like a famine due to crop failure or massive storm damage. You asked this of me before, but I don't believe I answered it directly: "In a famine situation demand is inelastic. In a famine, what do you think the government should do? Nothing? Let those who have the money pay for it and get it? In answering this question I'd appreciate knowing how this differs from healthcare."
I feel it is perfectly fine to supply aid to areas and populations at times like these. And I think this position is consistent with a libertarian ideology. But there is a big difference between aiding during times of disaster, and providing ongoing, continuous subsidies each and every day as a matter of policy. But still, any government aid should be structured in a way that it doesn't mess with the free market in the area. That is, any aid should operate within the market itself and it should be focused. I know that is hard for government to do. Otherwise it would send the wrong message - that people shouldn't actually take care to insure their property. People aren't stupid. If they see a bailout all the time, it causes them to adjust their view of risk.
A good example of this would be what most people consider "price gouging" during times of disaster. The price of a good contains a lot of information about supply and demand, and it acts as a signal for both the supplier and the consumer. When its adjusted during times of disaster, that adjustment can cause more problems and suffering than what otherwise would have been. Let me give you an example: I lived in Florida as hurricane Andrew passed through in 1992. I wasn't near the most damaged areas (I was far north of Miami), but we did get a bunch or rain and wind. After it was all over, there were some people selling gasoline for a high price (I think it was $15/gallon, but I can't really remember the exact number). I remember this because it was on the news. We saw long lines of people looking to get some gas for their generators and cars, and they were paying the higher price. But after a while, the police came by and took the men away for price gouging - taking advantage of those poor people in the time of a disaster. As they drove away, the line of people all clapped…… then they went home cold and without the gas they needed to stay warm. Something similar happened just a year a go with hurricane Sandy. Congress did vote for a huge relief package for New Jersey, and the news acted like it would all be OK. But months after the relief package was passed, there were people still without power, and there were still gas shortages within the affected areas. Why? Because the price wasn't allowed to rise on a good with seemingly inelastic demand (the demand didn't stop - they wanted to purchase the same quantity, and they couldn't substitute it with another good, and price wouldn't have been a factor). It should have been allowed to rise with no regulation. Yes, people would have flocked in with their own containers of gas and sold it at very high prices. But that high price would have been a signal to suppliers: "Make lots of money here!! Get gas to this area! We need it!" As the gas became available again, the price would then fall. In the mean time, people get what they need. This is in contrast to the federal goverment throwing money at it, which left people out in the cold (literally).
This is a good transition into healthcare - back into the law of demand. I agree that for some goods and services, you can substitute with something else, and for others you cannot. However, I don't feel it makes the market "special". In the example of my wife, seeking a chiropractor, you mentioned that the demand from our perspective was inelastic - that is we were still going to seek out the services no matter what. But that's when a market is needed the most. Yes, it really may be the case that we can not substitute a chiropractor treatment with some other alternative, but we can substitute providers! My wife needed that treatment, but even though she was in pain, she (not me) made the decision to get the heck out of there and seek out a competitor. Now let's assume for a moment that we went home and found no other competitor with a cheaper price. What do we do then? Do we throw up our hands and declare that the market just failed? No, the price, as it does with gasoline during a hurricane, holds important information. It is telling would-be providers of chiropractic services, "Make money here! Come provide this service!" The result would be, over the long term, more chiropractors and a lower price with more real availability to care of that sort.
That is why I was bringing up monopolies in my previous post. In the cases of products that are not subject to substitution, and products that are needed, rather than wanted, and therefore would seem like the law of demand is suspended, there is only a real problem if there is the customer can't go somewhere else to get the product.
In summary, I don't think inelastic demand really is a problem as long as there is competition. It underscores the importance of a real market. It also cuts to the core of my issue with ACA and single payer - it eliminates the competitive forces. For competition to really work you need 1) competitors, and 2) consumers that discriminate between competitors on price.
It really is a special market. Many items and many services have highly inflexible demand and are not subject to the substitution effect. I’m not going to try to argue all the factors of why it is so high… I’m nowhere near knowledgeable enough to engage that debate. I’m arguing, though, that it is a special market. Government involvement can have favorable or unfavorable effects on the allocation of services, on pricing, and on quality of delivery. However, government involvement does not change the fundamentals I’m referring to. It can be a countervailing force, however.
I don't think I should repeat too much. Many of the things I wrote in the previous section apply here. For those goods or services that view as inelastic, with no substitution, can a consumer get the good or service elsewhere?
Curious: how do you feel about car parts? If I want a new alternator for my 2004 Mitsubishi Outlander, I certainly can't substitute that part with a carburetor. I can't even substitute it with other alternators. I need one made for my car only. But its a good thing that I don't need to get it from the manufacturer. There are substitute providers, and so I pay less.
Upon reading and rereading your post, I think that after giving an excellent explanation of inelastic demand you then fail to use it correctly. When economists routinely write about inelastic demand they are referring, as you noted, to “where the demand doesn’t change so much in relation to price.” Inelasticity of demand has an effect on market fundamentals and it doesn’t have to approach perfect inelasticity for this effect to be dramatic.
Hmmmm.. Perhaps I did use it incorrectly. I wouldn't be surprised if I messed it up a bit. It was 3 AM after all. It'll happen to you too soon…ooops.. never mind, I shouldn't say that… don't want to freak you out. :)
Can you expand on what you mean by "market fundamentals"? - it is an overused term and I'm not sure what you mean by it. What effects are you referring to? Higher price?
I agree that a monopoly distorts the market effect, of course, as you note in your illustration of the desert town. (A strange town legislature that would grant a monopoly to an essential service but fail to regulate it). It is convenient to your argument that the desert town suffered a monopoly due to government interference. However, it does not have to be so. Let’s take this same town with no government interfering in the control and distribution of the water supply. An individual puts the capital into digging the well. He then creates the distribution network to deliver the water. He has a natural monopoly due to being first to market and to the high barrier to entry for any competitor. It is not perfectly inelastic at any price point as people would, at extreme prices, take tankers to other towns, walk miles to get water, etc. Nevertheless, the market forces are distorted because there are no easy substitutes, the demand is highly inelastic. After all, in the free market this entrepreneur should and will charge what he or she can.
Now, I’m not creating a straw man here, I know you weren’t arguing that monopolies are only caused by governments. I merely wanted to illustrate where government interference is required in a market distorted by highly inelastic demand. (Note: we should not confuse inelastic demand and inelastic need. It does not have to be a need, as in our discussion, to distort the market)
Like I said, I like to use illustrations, but I know each illustration has its limits. They never correspond to reality in every way, but rather just a few ways. But I am glad the illustration didn't blow up on me. I have you to thank for that because you didn't take it too far beyond what it was meant to illustrate. I agree with your point that there might be high start-up costs for a new well owner. Nevertheless, the barrier will be broken quite easily when the price rises. It will send a signal to others to risk the cost to start another well, or take out a loan for start-up resources. The only way to prevent that from occurring is to legally prohibit it. Up to that point I think the illustration is sound. But if you go too much farther, it starts to unravel. For example, you might say that it seems odd a legislature would do such a thing, seeing that they would be voted out next election cycle and replaced with people that would lift the drilling monopoly. I think my main reason for bringing that into the illustration is that we have now, in our current US economy, a whole heck of a lot of companies in bed with the government. They go to the government to ask for special privileges usually under the guise of "helping the middle class". In reality, its just to try to get law to step in and limit competition.
Your monopoly illustration is analogous, as you suggest, to drug companies with patents on life saving medicine. (Side point: monopolies cause price distortions which cost the consumer more. However a monopsony can reduce prices as is widely seen in state run healthcare.)
I am very skeptical of that last statement. In the case of a monopsony in healthcare, the state declares it is the only payer. All the providers need to come to the table and give a good deal! No state contract for those providers that do not give a good deal. This works for a while, but those companies that are outbid will soon go away (there is only one payer after all). Effectively, the competition is eliminated and a monopoly is created. The last company standing then can raise prices.
But, all of this is beside the point. The inelasticity of the demand (quantity) presents a strong resistance to natural free market forces. It does not require a monopoly and does not require a lack of supplier choice for a given service or item. What is requires is a poor elasticity in the QUANTITY demanded despite any given price for a specific service or item. This is where I believe you err: “I would say you are right only because government subsidies necessarily discourage people from the activities that would make it elastic.” I agree that government subsidies discourage people from making sensible market driven decisions about healthcare which further compound the problem. Your story about your wife’s need is illustrative of the value of deductibles and copays in helping shape efficient consumer behavior. We are not as far apart as you might think.
However, although you made a smart price decision your wife’s demand was highly inelastic. At the end of the day, the demand was still 1. You had a choice of suppliers and a choice of prices. That did not mean you had elastic demand. Of course, given an inelastic demand you will still make a smart price choice. But, the quantity was not affected. You were not able to say, well, at that price I will just get a drug instead (see, I’ve learned about the restrictions on drugs for pregnant ladies!). I believe you are mistaking consumer choice in a given buying situation among prices and suppliers with the demand itself.
The central question is not whether we can ensure that there are market forces at play to ensure consumers make better price decisions (I believe the ACA encourages copays and deductibles???) but whether the market is special because, as I claim, it is subject to highly inelastic demand.
Inelastic demand is an effect even when there are choices of suppliers and prices. If you did not find a less pricy chiropractic service, in fact, if you found that all the others were 10% HIGHER you would go back to that practice and get the procedure. The sticker shock would be the same. Your power to negotiate a better price for the product would not be.
And here is where you need to flesh it out. When you say, it "does not require a lack of supplier choice" - for that statement specifically, please give the economic "why" and "how". Step through it for me. Remember, we are trying to answer whether or not a product with inelastic demand makes it "special" so that it needs to be socialized. You write about it a little bit above. You said, "I believe you are mistaking consumer choice in a given buying situation among prices and suppliers with the demand itself." I don't think I am confusing them; rather, I am saying the consumer choice matters. The pure existence of a product with inelastic demand doesn't mean its "special" and requires government takeover.
Your last sentence there: "If you did not find a less pricy chiropractic service, in fact, if you found that all the others were 10% HIGHER you would go back to that practice and get the procedure. The sticker shock would be the same. Your power to negotiate a better price for the product would not be." - I addressed this in the first section. Yes, you are right. At that moment, for my case, I would go with the cheapest price (the original one). But since chiropractors have been working in this area for decades, we had choice through competition, and a lower price was paid. When the consumer is removed from the cost, however, it has the opposite effect - and that's what I want to avoid.
We still may differ in reference to copays. I don't think copays do anything. I could go to the expensive doctor and pay $30. Or I can go to the cheap one and pay $30. Deductibles are good because for a portion of the policy, the consumer is directly connected to the cost. I think everyone should have just a catastrophic plan - although I am not saying it should be forced on anyone.
Market prices also drive the input costs. At the macro level, I believe the demand elasticity has a particularly strong effect on highly specialized inputs. I can’t pay my employees too much or the market will not bear the cost of our services. However, if the market was less elastic I could. I need my specialized team and so do my competitors. Wage costs could go up until this class of specialized folks were paid the most the market can bear. That occurs in efficient market dynamics too, but in a market distorted by inelastic demand for a highly specialized service (skill) or product that ceiling is much higher. It illustrates why the free market is not enough to produce efficient pricing when the forces are out of balance.
Hmm, but I don't see it that way. I see a highly specialized team getting paid a lot of money. That price signals the future producers of that labor (students looking to find a career) to invest in education so that they too can earn a lot of money meeting the obvious demand for those skills.
I disagree. You might want to say “unless you price fix by law OR ration care”.… Even still, those nations with the most socialized healthcare frequently provide better outcomes for less cost per patient (or by GDP) than the US. Monopsonies are highly effective against natural monopolies and are also a counter weight to inelastic demand (IMHO).
Yes, I concede I should have said "OR"… actually, on second thought we both messed up. It should be "AND/OR". It could be one or the other or both. I need to come back and re-address this statement at another time, maybe tonight or tomorrow. You say "better outcomes" - how can you be so sure? How do you define "better"? Monopsonies tend to make artificial monopolies…
I think you made a mistake there. A glut of services will cause a decrease in price. I think you meant that price fixing causes a decrease in services. We have seen this in Canada where some specialists move to the US where they can make more money and operate with greater freedom. Your point is valid. It is a good argument against a single “invisible” payer. I take your point. However, I counter that the argument that prices will naturally fall in a free market is incorrect due to the forces discussed above. In multi-decade live examples in country after country central price negotiations and fee schedules have NOT lead to poor outcomes.
The moral argument is that when there is scarcity of supply of something critical to live and limb the market is not a suitable moral arbiter for the allocation of products and services. It works for ipods not for heart transplants. I argue that morally, those with more money should not be the first entitled to healthcare. Of course, wealthy baby boomers will get plenty of hip replacements in a market driven system. However, the underprivileged child will not necessarily receive the needed treatment. I believe the moral duty is to remove "not" from that last sentence and it takes collective action to make that possible.
DogGone does not have all the answers. But, would you agree that this is a special market? Maybe, you do not like the options of a single payer, single insurer, individual mandate, etc; However, do you still feel the free market, absent government interference, will lead to reduced prices for items and services across the board in healthcare the way it does in fast food and home electronics?
Ahh, but I don't think I made a mistake. But I would say that I was severely unclear, LOL. I said, "you can see it will cause a glut in services and an increase in price". The glut of services is caused by the distorted price from a single payer, but there is no downward force on the price. A single payer will make it look like, from the perspective of the consumer, that the cost is low (zero). They will flood into the doctor. The doctor will start to raise prices, and most likely expand. After all, from the perspective of the doctor, its a huge increase in demand (looks like healthcare might be responding to the law of demand :)). New doctors will come into the market to get in on the boom. But, the consumer is not connected to the cost, so there is no downward pressure on the price. No doctor will have any reason to lower the actual price of their servies, only increase. It will continue to rise and the boom will continue - that is until the benefactor, the single payer, can't maintain the cost. Then comes the price controls AND/OR rationing.
I have enjoyed these posts!
MMM
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jgnat
Pharmaceuticals build their entire business model on coming up with a unique product that can only be supplied by them... until the patent expires. They intend to make up their research and compliance costs and more in that short window of time. This would be an example of inelastic demand where there are no competitors, no?
It also means that treatments for rare and exotic diseases are not pursued as aggressively, as there simply isn't a market.
Free market, supply and demand may cause unacceptable gaps in service delivery.
http://www.ted.com/talks/ellen_t_hoen_pool_medical_patents_save_lives.html
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MeanMrMustard
jgnat,
Your first video: (https://www.youtube.com/watch?v=qSjGouBmo0M&feature=player_embedded) - I did watch it but I did not comment on it. The maker of the video (vlogbrothers) fires off many many points, hard and fast. It makes it tough to respond to everything there. However, since I agree with a lot of what he says, it is somewhat easier. I have no reason to really disagree; he is right, we spend way too much on healthcare. The problem is not over utilization, it is not that we are inherently sicker, and it is not because things just cost a lot here. I keep bringing it up that people aught to ask why it costs so much, not attempt to just pay for it. I also do not think it is because of inelastic demand. It is because we have systematically, over a long time, gone away from the free market and caused all sorts of distortions in the pricing mechanism.
One interesting point - he mentions malpractice insurance somewhere around minute 4. He states that it can't be that either because Texas enacted Tort reform (although I don't know the details, I can assume it was meaningful reform for the sake of the argument) and the cost of healthcare fell only 0.1%. I have no reason to disagree, after all, what is pushing the price down? It is not enough just to remove the barrier for the price to fall, you must also have a meaningful market with competition to push down the prices. That doesn't happen the way we currently do things (employer based insurance or medicare or medicaid).
I think the point I've been trying hard to make is that the way things are now - as messed up as they are - have come about by a process, a process that started with wage controls during WWII, and continued on to today. More and more of the free market was replaced with subsidies, distortions, or special privileges. Which leads me into your second video:
http://www.ted.com/talks/ellen_t_hoen_pool_medical_patents_save_lives.html
Again, I agree with her. You said: "Pharmaceuticals build their entire business model on coming up with a unique product that can only be supplied by them... until the patent expires." They build their model around the patent law. Ellen in your video states just as much. So what do you think would happen if we just got rid of patents? Note: getting rid of patents is not MORE government, it is LESS - since they are just government sanctioned monopolies.
MMM
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nonjwspouse
This is something I am extremely angry about, and it is because of government that they are allowed to do this.
It is currently $9,700 for 30 days. It goes up almost every month by hundreds of $.
It was in health food stores for $35 before the government stepped in and classified it as an orphan drug.
There is NO subsitute for those that desperatly need it.
