The Health Spending Myth

The runaway healthcare spending myth is a great example of how the free market works when the consumer responds to the economic factors that are presented to him. Healthcare spending was spiraling at significant rates in the late 90’s and reached a peak in 2002. Most people believed that it was the only industry that violated the supply/demand theory and rationalized that since most consumers had health insurance provided by their employer, who paid the lion’s share of the premium, rising prices had no effect on demand. Also, there was no real competition in the classical sense since results were measured in near term rather than long term outcomes.

Finally, the free market kicked-in when employers realized the growing impact of this cost on their bottom line. They started to increase the employee’s portion of the premium, they offered consumer-oriented health plan options to employees,and the concept of health savings plans started to become more popular with younger and healthier people who opted for high deductable plans with lower premiums. Prevention became the health motto as holistic and integrative medicine became more popular. The golden age of wonder drugs in the 80’s and 90’s was giving way to generic alternatives as patents expired and these medications became more affordable and available over-the-counter.

We were seeing the transfer of economic responsibility for healthcare evolve from corporate and government bureaucrats to the consumer – and sure enough healthcare is starting to resemble the free market where the consumer dictates price, competition, and value. As the illustration shows healthcare spending is now growing at a rate that resembles the inflation rate. This refutes the claim we hear from this Administration that we now need Obamacare or national healthcare “to stop this out-of-control healthcare system”. In fact, that data show that costs will actually climb as a result of Obamacare, care will be worse (particularly for the elderly), and the consumer will lose control of his healthcare destiny.

The fact of the matter is the price of food, gasoline, and the basic staples is what’s skyrocketing with this inept blend of academics and inexperienced bureaucrats who never read a profit-and-loss statement or even worked for a living, are now calling the shots. Instead, this President spends $1.0 trillion on his convoluted healthcare plan, and steals $500 billion from Medicare to pay for it which puts us in the hands of commissions and panels to decide the care we get.

I’m not implying that our healthcare system is fixed, we certainly need reform, but the fact is that this decade-long trend line shows us the way toward good policy decisions in the future. If we can uncouple health insurance from employment, allow the consumer to purchase his own mix of coverage in a competitive market across state lines, we will accelerate this evolution in healthcare costs and make it a system that provides affordable care for all segments of our society.

The Manufacturing Decline Myth

Several things continue to happen that cause me to believe that this administration has no idea how business works. By this I mean that they believe government manipulation of business is necessary and that the free market is not reliable. One major mistake is forcing the so-called “green energy” initiative on us before it is ready or economically viable. The initiative is driven by the fraudulent concept of global warming, which presumably is caused from the use of fossil or carbon-based fuels. Rather than permit the free market to work, this President forces the adoption of alternative energy, by supporting subsidies, tax breaks, government loans, which really inhibits the development of this technology and raises the cost of energy across the board.

In a free market new technology replaces old when it becomes cost competitive which will drive demand once the public realizes it is more efficient or makes their life better. When you artificially make new technology appear to be commercial you actually slow its development. This is the case in the auto industry as the government has forced the development of the electric car at a price that is not competitive with conventional technology and still has many unresolved safety and technology issues.

The impression that America doesn’t make things anymore is a myth. The U.S. economy has grown by almost seven fold since 1947 and the manufacturing sector has grown at the same rate, however, the service sector has spurted over this period and manufacturing is a smaller portion of the overall GDP. America’s global manufacturing share has remained at 22% since 1970, more than any other nation, even with the rapid development of Japan, Korea, and China over the period.

What makes us a competitive global manufacturer is our productivity which unfortunately is offset by the corporate tax burden on our manufacturing community which is the highest in the world. The real manufacturing crisis is in jobs, our output per manufacturing worker was $35k in 1947, and today it is an astonishing $150k. Manufacturing productivity has increased 103% since the late 1980’s and is double that of all other sectors in the larger business economy. This is realized in the economy by lower prices for manufactured items which makes this sector appear to be shrinking.

Do you think this may also have anything to do with the decline of unions in the manufacturing sector over this period? You bet it does! As well as the quality push, computer technology, and plant modernization, while the government continues to add on more regulations, increased taxes, more loopholes. This is why I have a problem with Mr. Santorum who like Mr. Obama this week, says we can help manufacturing with more government “incentives” and tax breaks. We can do without that kind of help; we need the free market to work. Mr. Romney knows that and needs to inject that into the debate.