The Young Doctor Has It Wrong

This post first appeared as a column in Rochester's daily newspaper the Democrat & Chronicle on Sunday, January 19, 2020.

A guest column in this newspaper by a medical student, Toby Terwilliger, makes a case for Medicare for All (M4A) – an unsubstantiated case.  He begins by referencing the high cost of medical care in the U.S. and its relatively poor outcomes.  So far, so good.  He projects current costs of $4 trillion annually will rise to $6 trillion by the end of the decade.  He declares that M4A will reduce costs by $500 million per annum, a figure he has plucked from Senator Elizabeth Warren’s website.  Unfortunately, he fails to make a case as to how those costs and outcomes might improve under M4A.  M4A will add $3 trillion to annual Medicare costs if and only if reimbursements are reduced to a level below the cost of providing the services according to an often-cited study by a former trustee of Medicare under presidents Bush and Obama.  Otherwise there would be no savings.

Mr. Terwilliger bases his conclusion about the high cost of healthcare on a simple premise that our “healthcare industry puts profits over patients.”  That’s speculative at best.  The Kaiser Family Foundation projects that annual per capita Medicare spending will increase by 5.1% compared to 4.6% for private insurance over the next decade.  Eliminating profit from the system won’t reduce costs.  It never does.  The profit motive drives efficiency and lower costs.  

This is not only true of consumer products and services but also medical procedures. In an unregulated environment, the cost of cosmetic surgery has not increased as fast as consumer prices over an 18-year period according to The American Society of Aesthetic Plastic Surgery.  Meanwhile, medical inflation drove up the cost of healthcare by 177% or more than triple the rate of overall inflation.  

A study by the non-profit North Texas Clinically Integrated Network, Inc., an Accountable Care Organization created under the auspices of the Affordable Care Act, cites eight key drivers of cost.  First among them is the “Fee For Service” (FFS) payment system which “generates a strong incentive for driving up the volume of tests and services.”  Any reform of our health insurance system that doesn’t include a shift from FFS to a value-based system will fail to address our high cost and poor outcomes.  

In a guest column I wrote for this newspaper last year, I laid out four principles essential for effective healthcare reform: (1) universal coverage, (2) reform the FFS system, (3) price competition and (4) cost-sharing.  Rolling out M4A would not address the last three of these principles and would inevitably lead to higher costs without necessarily improving outcomes.  

Mr. Terwilliger demonizes CEO’s who earn millions from the profits of the healthcare system.  But it’s doctors who have benefited most from FFS.  In the days when doctors made house calls, the automobile known as the “doctors’ car” was a Buick not a Mercedes-Benz. 

WHO WILL LEAD?

Further Future: a 21st Century Economic Model -- Part 2

This is Part 2 of 2.  To read Part 1, click HERE.

No discussion of economics can exclude current hot button topics: income inequality, free trade, immigration and the urban/rural divide.  In the aggregate, the free trade regime promoted by every administration since Nixon’s breakthrough China policy has contributed to US economic growth.  The law of comparative advantage (first defined by David Ricardo, a disciple of Adam Smith) has been demonstrated to have the desired effect.  The US advantage in professional services, global management and innovation has served us well, creating high paying jobs in urban centers – New York, Silicon Valley, Chicago, Dallas, etc.  Unfortunately, the benefits are not universally available to everyone.  Or, to put it another way, no matter how many jobs are created for international tax experts in New York, none of them are going to be filled by a worker who has lost his job in a North Carolina furniture factory.  

In his book “The Future of Capitalism,” British economist Paul Collier proposes that we change the redistribution model.  Rather than tax the rich and give to the poor, he would have us adopt an “agglomeration tax.”  Mobility is critical to economic growth.  From the time of the Pilgrims, people all over the globe have fought to immigrate into the U.S. to take advantage of the economic freedom our social contract allows.  Within the U.S., migration between regions and from rural to urban centers is an indicator of economic success.  (That’s why the European Union adopted the Schengen Agreement permitting migration across national borders.)  Our economic growth has been driven by this agglomeration, particularly in the era of free trade.  Collier points out that not everyone benefits from their move to the big city.  Demand for housing and other retail products and services renders the cost of living much higher than outlying areas.  Those whose incomes fail to rise to the level necessary to offset the higher cost suffer.  Those whose income growth outstrips the higher cost thrive – investment bankers, lawyers, Silicon Valley entrepreneurs.  Collier’s agglomeration tax would take from the latter category and pass it on to rural communities to offset the economic damage.  

At first blush, this proposal might seem to make sense.  But redistribution hinders prosperity no matter how you design the formula.  And, in any event, such a proposal would be politically infeasible. 

The key to prosperity begins with capital formation.  If you don’t have the dough in your bank account to start a business, you have to attract investors.  And, investors are attracted to the prospect of great returns.  For government to fulfill its social purpose, it must create the conditions that attract private capital.  On the whole, the U.S. does a great job of this.  Indeed, our economic prospects rely upon our ability as a nation to attract Foreign Direct Investment (FDI).  

On a smaller scale, communities can only succeed by obeying the law of attraction.  Companies are attracted to friendly regulatory and low tax environments.  This may sound to you like an “old saw” from an old conservative (and it is!).  But that doesn’t make an invalid statement.  I’ll point to two examples of small cities who have overcome the impediments to economic development.  

Chattanooga, Tennessee famously bet the farm on high speed internet in 2010.  City government recognized that the path they were on would lead to the same type of failure experienced by other small manufacturing communities.  A $330 million project -- beyond the reach of the city’s budget, funded by $111 million from the federal government with the balance coming from municipal bonds issued by the city -- enabled the city to create no-latency internet service to any and all businesses and households.  The city has thrived by attracting high tech startups to its low-cost-of-living, superior-infrastructure setting.  More recently, the Lehigh Valley region of  Pennsylvania has begun its recovery from the shuttering of its steel plants by more traditional means.  Offering tax credits and abatements and promoting development of office parks was only the beginning.  The New York Times reports that recent economic development efforts are centered on development of urban centers to attract Millennials, featuring restaurants, bars and cultural centers.  

The critical element in these two stories is local initiative.  Attracting both federal grants and private investment is the prototype for small cities to thrive.  New ventures and established companies that will create jobs and young professionals who will settle, pursue careers and raise families is the key to success.  

States like New York, lacking the wisdom and fortitude to lower taxes and reduce regulation, make the mistake of substituting government funding for private capital.  The imposition of social criteria and friction costs reduce returns and ultimately fail the communities they endeavor to help.  

Local communities can learn from the successes of Chattanooga and the Lehigh Valley and create their own economic development strategies.  Strong communities keep talent at home, promote new ventures, support established businesses, improve city schools and create programs to train the workforce and provide transportation to where the jobs are.  

New habits, creative approaches and public buy-in are challenging.  For communities to succeed, its leaders – corporate, government and non-profit – must unite behind a common vision and convince the public to support it.  It won’t be easy; but it’s got to be done.

WHO WILL LEAD?

Further Future: a 21st Century Economic Model -- Part 1

The last half of the 20^th Century bred more than a few superstar economists.  Even those who are not students of economics have heard of Milton Friedman, Paul Krugman and Paul Samuelson.  Columbia University professor of economics Mark Skousen has a different threesome in mind.  In his book “The Big Three in Economics,” he argues on behalf of three who have the most lasting effect on our economic thinking:  Adam Smith, Karl Marx and John Maynard Keynes.  That each of them lived and worked in three different centuries is no accident.  It is, rather, a measure of how long it takes for breakthrough economic theories to take root and have lasting effect on the societies that embrace them.  

While Smith (18^th Century) and Marx (19^th) might be posed as polar opposites, Keynes (20^th) proposed a blend of free enterprise and government using fiscal policy to affect economic outcomes.  (We are now more affected by the monetary theories of Milton Freidman.  But he didn’t make Skousen’s cut.) 

The NY Times profiled an economist who endeavors to have that kind of effect on the 21^st Century.  Mariana Mazzucato -- born in Italy, raised in the US and teaching in London – would like to change “how society thinks about economic value.”  Eschewing the now tired debate that frames the free market and government as opponents, she points to the Internet, GPS and the silicon chip of examples of how government research has enabled free enterprise to flourish and society to benefit.  She also suggests that the political left is “losing around the world because they focus too much on redistribution and not enough on the creation of wealth,” according to the Times.  Her theories have been embraced by politicians of both parties who declare themselves to be capitalists but want government to be more active in achieving economic outcomes.  Elizabeth Warren would double federal R&D to “Create and Defend American Jobs”.  Meanwhile, Senator Marco Rubio (R-FL) has published a treatise outlining how the federal government should steer capital to favored industries. 

It would be easy to fall into the usual tribal debate about Dr. Mazzucato’s ideas – the libertarian right vs. the socialist left.  But the dogmas of either side don’t hold up under scrutiny.  It’s hard to argue that capitalist Silicon Valley startups enabled by Wall Street money haven’t created jobs, prosperity and the follow-on effects of both.  It’s also hard to argue that government didn’t play a role as technology from both the Defense Department and NASA is at the core of all digital businesses.  (The GPS system on which we all rely is still operated by the US Air Force.)

So, the question isn’t whether government research can benefit the economy or not.  It is rather where should we draw the line?  Mazzucato, Warren and Rubio would have the federal government not only directing research dollars according to social goals they deem beneficial but also extending government investments into the (no longer) private sector.  The paradigm they propose is not without precedent.  Countries as diverse as Japan, China and the former Soviet Union have created industrial policies to guide the economy.

There is no question that government can play an active role in wealth creation.  However, Dr. Mazzucato (as well as Senators Warren and Rubio) draw the line in the wrong place.  It’s certainly true that the iPhone wouldn’t exist without silicon chips, the Internet and GPS.  It’s also certainly true the federal government would never have invented the iPhone.  So, I would stop at having government invest in companies that will bring innovative technologies to market.  There’s plenty of private capital to make that happen.

Indeed, the digital technologies brought to fruition by government agencies had no commercial purpose when they were invented.  They enabled those agencies to pursue their objectives.  Silicon chips supported the space program.  GPS supports the US military. 

By contrast, the Obama administration invested in green technology to enable private enterprise to achieve a beneficial outcome.  The creation of the Advanced Research Projects Administration – Energy (ARPA-e) under the Department of Energy was meant to mirror DARPA, the Defense Department agency at the heart of the development of digital technology.  It has granted over $1.5 billion to 580 projects.  Many of these projects were highly speculative and haven’t borne fruit.  However, a select few have attracted $1.8 billion in private sector investments. In other words, the government invested in research where the private sector wouldn’t and, much like digital technologies, the private sector has taken the results and developed products that are market ready.  The greatest successes have come from the improvement in cost and efficiency of both solar panels for power generation and battery technology for electric vehicles.  So, it can be shown that the DARPA/ARPA-e model can be translated into commercial success.  

As for its social purpose, the results are a mixed bag according to Investors’ Business Daily.  The adoption of alternative energy throughout the US has resulted in a doubling of the percentage of total energy generated from alternative sources since the turn of the century.  However, in that time, U.S. consumption of energy from fossil fuels has remained about the same according to the Congressional Research Service.  Similarly, while there has been a boom in sales of electric and hybrid vehicles, the environmental benefits have been offset by the increased sales of SUV’s, this despite powerful financial incentives to buy electrics.  So, in the case of environmental technology, it might be said that government research has contributed to a green future but those who might benefit – the voters – have undermined our success. The game’s not over, of course.  More than 40 years elapsed between the invention of the silicon chip and the creation of the iPhone.  Few would have predicted it.  So, we shall see what the future holds when the future happens.  

End of Part 1 of 2 parts

It Really is a Wonderful Life

Donna Reed, Jimmy Stewart and Karolyn Grimes

We attended last weekend’s It’s a Wonderful Life Festival in Seneca Falls.  I can’t recall a holiday season when we didn’t watch the 1945 Frank Capra classic.  So, it seemed obligatory that we would attend at least once.  Naturally, we tracked down Karolyn Grimes, the child actress who played Zuzu, the youngest of the Bailey children.  We took a picture together and I bought a photo which she autographed for me.

“Do you want me to address it to someone or just sign it?” she asked with pen poised.  When I hesitated before answering, she added “it’s worth more with just my autograph.”  

What? I’ll never sell it.  And, who would want it?  Isn’t the movie an idealized version of a time gone by?  A time that older Boomers remember and that is now dismissed as hopelessly old-fashioned and irrelevant?  Well, yes, it is.  And it is also much more than that.  It’s a Wonderful Life is a story about how each of us can have a positive impact on the community in which we live.  It’s also a story about the sacrifices we make to live according to our values.  

Many people decry the commercialization of Christmas.  And, it’s true that most of us spend more time and energy on gifts, decorations and holiday celebrations than spiritual pursuits.  But even as the celebration of Christmas has become more about gifts and festivities than the birth of Jesus Christ, it has never strayed from a celebration of the human values taught by Christ.  The United Nations took the time to delineate those values in in 1948.  In thirty articles, it articulates our right to equal treatment before the law; to the life liberty and security; and, to freedom of thought and conscience.  

 

Karolyn (Zuzu) Grimes

It’s a masterpiece that was deemed essential in the wake of two world wars separated by a global economic depression.  But it doesn’t bring the message home in the same way as George Bailey does.  It’s a Wonderful Life is a story about the reciprocal obligations of communities.  It’s a demonstration how loyalty, fairness and caring work in real life.  These values are cherished by people around the world whether they are Christian, Jewish or Muslim.  They form the basis for successful communities in nations that are prosperous and those that are not; among the wealthy, the poor and the middle-class; and by people of all races.  The reciprocal obligations of our communities transcend our political, religious and cultural differences.  

The Baileys are heroes because they place those obligations above all others including their own financial success and, also, because we see the sacrifices they make in their endeavors.  So, I think the movie will remain relevant long after we Boomers have gone on to our reward.  And, no, Zuzu’s picture is not for sale.  

HAPPY HOLIDAYS!

Political correctness is killing America

A recent incident brought home the impact of language and how we use it.  I wrote a guest column for our local newspaper titled “I’m just an old white guy, who is angry.”  The bifurcated response was extraordinary.  Many saw it as evidence of racial bias resulting from “white privilege.”  A friend passed me notes taken from an interracial group meeting within the city limits during which whether I was a racist was the subject of debate.  Meanwhile, out in the suburbs, a local furniture store owner said, “you must be reading my mind”; a neighbor told me she “loved it”; and, someone crossed a busy restaurant to tell me it was “genius.”

From my perspective, the former group reacted to the headline rather than the substance of the column which had nothing to do with race.  Reacting (or overreacting) to a word or a phrase taken out of context has infected our society with a disease.  It is among the many ways in which political correctness has deteriorated our ability to function.  Examples run from the ridiculous to the terrifying.  A Seattle teacher is reported to have renamed “Easter Eggs.”  They should be called “Spring Spheres” to avoid offending those who don’t celebrate Easter.  The absurdity has crossed the pond too.  In the UK, the Turnbridge Wells Borough Council banned the use of the word “brainstorming” for fear of offending mentally ill people. In Sydney, Australia, Santa Clauses have been instructed not to bellow “Ho, ho, ho!” for fear of offending American prostitutes.  More serious is the firing of a Harvard Law School professor because he agreed to work for the team mounting Harvey Weinstein’s defense.  Apparently, not all Americans are entitled to an attorney to represent them, only those deemed worthy.  

Last month, a student newspaper at Northwestern University apologized for its coverage of protests objecting to a scheduled speech by former U.S. Attorney General Jeff Sessions.  They had included some unflattering photos of protestors.  To their credit, many professional journalists objected to the apology.  The newspaper is edited and staffed by students at Northwestern’s top-rated journalism college.  Pointing out that taking photos of people in public places and reaching out for interviews is a reporter’s job, Washington Post columnist Glenn Kessler wondered how “a top journalism school would apologize for the basics of reporting.”

Most Americans are sick of it.  A study by a non-profit group called “More in Common” reported last year that approximately 80% of Americans think political correctness has gone too far.  Some report fatigue at having to keep up with frequent changes to acceptable language.  

While moving the goal posts can be frustrating for those just trying to live our lives, the true impact is more pernicious.  There is a class of people who specialize in being offended.  Many of them take to Twitter to express their outrage.  The Twitter Mob, in turn, has an outsized impact on mainstream media.  Once a politically incorrect utterance is widely reported, the consequences can be catastrophic.  Just ask the North Carolina police chief, the California schoolteacher and the Google engineer who lost their livelihoods for daring to speak their minds.  Suppression of language effectively makes the thoughts they represent become unthinkable.  Is that what we want in a free society? 

The cure for this disease is not an easy pill to swallow.  It requires each of us to examine our own biases and to be open to discussion.  Self-righteousness is so much easier.  The Harvard Business Review (HBR), noting the negative impact on work environments, has outlined five principles to enable constructive dialog.  Among them: pause, connect, question yourself and shift your mind-set.  HBR’s prescription is intended for business leaders.  But it could be adapted for use in any community.  

WHO WILL LEAD?

Livin’ the US Economy Benjamin Button style

Based on a short story by F. Scott Fitzgerald, “The Curious Case of Benjamin Button” was made into a feature length film that was nominated for 13 Academy Awards.  Benjamin lives his life in reverse – born as an 84-year-old man, dying as an infant – as the calendar advances.  A recent report on our economic prospects over the next 30 years has me wishing I could live out my years like Benjamin Button.  Only, I would wish that the calendar would go in reverse as I got older.  Sort of a double reverse. 

The report from Price Waterhouse Coopers (PWC) projects the US in third place as measured in Purchasing Power Parity (PPP) by mid-21^st Century.  Six of the seven fastest-growing emerging economies today would be among the seven largest in the world by this measure.  Vietnam, Bangladesh and India would be the fastest growing during the intervening timeframe.  PWC, of course, is among the Big-4 global accounting firms.  Being business oriented, they recommend global companies invest in creating supply chains to serve those markets.  Since WWII, the US has relied on positive Foreign Direct Investment to maintain dollar strength and offset our negative trade balance.  If that flow were to reverse, we slip down the slope to less prosperous lifestyles.  

Moreover, Americans would have to adjust their world view.  Our economic power enables our military power.  The combination of the two enables us to influence world events and create a buffer between us and foreign adversaries.  We are protected not only by the two oceans but also by military alliances with NATO, Israel, Japan, Australia and the Philippines.  

It would be better to go back in time. 

If I were born today and could live my life as time went backwards, I would be oblivious to the slow growth economy of the 2010’s.  My parents might be awash in credit card, mortgage and auto loan debt.  But I’d be a kid.  What the heck would I know about it?  We would go through the reverse bursting of the Internet bubble, cashing in our tech stocks just in time to pay my college tuition which would be about half what one might pay today.  

I would get my first job during the booming 90’s benefiting from the Reagan and Clinton tax cuts and the peace dividend from the end of the Cold War.  In the 80’s I would buy my first house – a huge house supported by the two incomes my wife and I would earn.  I would go to Vegas and bet the longshot L.A. Dodgers to win the ’88 World Series behind Kirk Gibson’s walk-off home run in Game 1. Our middle-class lifestyle would include two new vehicles every three or four years, one of which would be a minivan to cart the kids around with all our stuff.  And, there would be plenty of stuff because I would be entering my peak earning years and spending money like I planned to die tomorrow.  

I would enter middle-age during the sluggish, high inflation 70’s and would buy a townhouse when the kids went off to college.  I would trade in my VW Beetle for a Buick LeSabre as gas dropped below a half a buck per gallon.  I would bet on Secretariat to win the Triple Crown while trying to remember whether the Steelers beat the spread when they won four Super Bowls in six years.  I would invest in big oil companies knowing they would get richer as a result of the oil crisis.

In the 60’s, I would grumble about all those hippies protesting on campus while I adjusted the rabbit ears on my TV so I could watch Neal Armstrong plant the first human footprints on the moon.  My Vegas bet would be on Broadway Joe to take the Jets to Super Bowl victory over my hero Johnny Unitas. My car would be lower, longer and wider with a massive V8 engine under the hood, all the better to get a quick start at red lights.  I would buy skinny ties and pocket protectors to prevent my ball point pen from ruining my dress shirts. I would know that the JFK tax cuts would be reversed and worry about the impact of higher taxes on my lifestyle.  I would invest in blue chip stocks as insurance against my smaller net salary – GM, AT&T, GE and IBM.

I would be secure in retirement and maintain my middle-class status while living in a 1,000 sq. ft. home and sharing one car with my wife because that’s what middle-class meant in the 1950’s.  There would be no smartphones or flat screens to distract me and no credit card debt to undermine my financial security. 

Benjamin Button lived to the age of 84.  Were I to live that long in reverse time, I would witness the devastation of WWII and the holocaust and pass on to my reward during the Great Depression.  But I would have lived during the American Century, the most prosperous time in our history… a time when children of immigrants could transcend their socio-economic status… a time when our leaders enacted bold legislation… a time during which the United States set a standard by which other countries were measured.

WHO WILL LEAD? 

A Boomer who’s OK with #OKBoomer

I just returned from a European vacation -- blissfully unaware of current events – in time to head to the polls.  Of course, one can easily follow current events from Europe.  All one needs is an Internet connection.  I simply chose not to read the news or follow the latest social media nonsense. 

My first clue of the latest potboiler was a tongue-in-cheek Tweet by WXXI’s Evan Dawson lamenting that a Rochester radio host had gained national attention and it wasn’t him.  He faux-whined “Am I doing this wrong?”  Later, I learned about Bob Lonsberry’s comparison of the hashtag #OKBoomer to the N-word.  To say Lonsberry’s analogy was overreach is stating the obvious; but I understand the emotion from which it springs.  Just as I wrote a few months ago that being a white male is considered an original sin, Boomers are now being dismissed as an irrelevant generation.  As an older Boomer, I should be insulted. 

However, I have to say I agree with many of the complaints of Millennials who will inherit from us a mass of structural impediments to our progress as a society.  We once lectured our elders about environmental pollution and bought Volkswagens and Toyotas instead of huge sedans.  Now, we buy SUV’s.  We protested the war in Vietnam and take credit for bringing it to a close.  Now, we have led the nation into the longest wars in our history.  We advocated political reform to rid society of “smoke-filled rooms.”  The reformed process has yielded Donald J. Trump.  The failure of four Boomer presidents is monumental, leaving us with unresolvable deficits, unviable social safety net programs, and government that is captive to industry.  

Historian and demographer Neil Howe has researched generational transitions back to the War of the Roses. He posits that every fourth generation – those who come of age during crisis – brings forth a heroic new paradigm for governance.  The last generation to do so, was the WWII generation.  Their post-war world order has given us 70 years of unprecedented prosperity  and is now, like Boomers,  getting a little long in the tooth.  So, dramatic change is perhaps due.

Like many of my contemporaries, I shake my head at Millennial ideas that seem crazy, from Green New Deal to free tuition to socialism (Socialism? Really??).  But Millennials are unlikely to tolerate an unsustainable model that has its roots in the experience of their great grandparents.  A generation of Americans that grew up with the Internet isn’t going to tolerate public institutions that operate on a 19th Century bureaucratic model. Nor will they tolerate a healthcare system that absorbs more and more of our national income without improving outcomes, a social safety net that will collapse of its own weight or an education system that doesn’t match graduates with jobs and careers.

Going forward, the national debate won’t be about spendthrift compassion vs. cold-hearted austerity.  It will be about developing a healthcare system that can care for our poor and elderly without bankrupting the country, restructuring education to deliver globally competitive graduates and ordered liberty that provides equal opportunity to all.

Just don’t mess with my Medicare, okay?

WHO WILL LEAD?