Monday, February 18, 2013

Who Can Afford the Affordable Healthcare Act?

Recently I visited a church I hadn’t been to for years.  I was very impressed at the improvements they had made.  The music was better, the sermon was better and the entire experience was much better.  Churches are notoriously slow to make these types of changes.  So what was at work here?  Was it the “unseen hand” of God?  No, it was the “invisible hand” of competitive markets as described by economist Adam Smith in 1759.
Adam Smith was one smart guy!

This church made these changes because a large, very popular, mega-church in a near-by city decided to build a satellite church two miles down the road.  When faced with this strong competitive threat, the church quickly made the improvements necessary to retain, and even grow, its congregation.

Competition is an essential part of our free markets.  Promoting competition   is a key factor in the U.S. economy being the largest in the world.  Americans love competition. That is why billions are spent on professional sports.

Companies compete aggressively for consumers’ dollars.  This results in better products, better service and lower prices.  When competition is reduced, you get lower quality products, poor service and higher costs.

When government provides services, competition is reduced and usually product/service quality suffers and costs (which are the taxes that pay for it) increase.  The best example of this is education.   The idea of providing standardized education to all children was a great and noble concept that worked well for years. But in the absence of competition:

-        Product quality diminished

-        There is a lack of innovation

-        There is strong resistance to change

-        People have figured out how to “scam” the system for their financial gain

-        Costs have skyrocketed (can we just pass another levy?)
We have tried to increase competition in education by way of vouchers.  So far the public schools have spent more time and money trying to thwart the new competition rather than trying to improve their product.

The Affordable Care Act (ACA) now gives government a larger role in the healthcare markets.  The ACA is supposed to help limit the growth of healthcare costs, but I see nothing in the law that actually does this.  Usually more government control means less competition and less competition always leads to higher costs.

In addition, the current government healthcare programs (Medicare and Medicaid) waste large amounts of money from both illegal fraud and “legal” gaming of the system.  It can be assumed that the ACA will result in similar waste as soon as people figure out how to take advantage.

Whenever proponents of the ACA admit that costs will go up for individuals, their answer is that the higher costs will be offset by government subsidies.
This would be fine if the government was sitting on a big old pile of money that needed to be spent on something.  But we are broke. It’s really the Unaffordable Care Act and who do you think is going to end up paying for all the expensive promises the government has made?  The costs are going to start rising next year and I’m not sure they are ever going to stop.

And the economic law of “Unintended Consequences” continues to impact the ACA.  The benefits and number of new people getting insurance is greatly overestimated.  The estimates were based on companies just accepting the new rules without responding.  But businesses are cutting employees hours, limiting hiring and doing whatever is necessary to control costs. 

Nobody knows exactly how this will all play out because people are finally reading the entire law and getting legal clarification of all the confusing details. More onerous, costly, provisions are suddenly being “discovered”. This could get very, very, ugly.

The best solution to the healthcare problem is to increase supply and competition so that the cost of healthcare is reduced to the point where it is truly affordable, with government having a limited role in managing the process. 

Wednesday, February 6, 2013

Some “Experts” Got Some Splainin' To Do!

The initial GDP estimate for Q4, 2012 came in at -0.1%.  Yes, NEGATIVE! 0.1%.  And the economic world was shocked.  Economists were shocked, commentators were shocked and government officials were really shocked.  It was in a word SHOCKING!  This was truly an economic tremor, because no one, absolutely NO ONE saw this one coming!

Shocking News?  Really?
Well maybe not everyone was so shocked.  And just maybe you might know someone who may have thought this was happening.

From my December 9, 2012 post “A Very Ugly Freight Market”:

“The freight data is consistent with my forecast that the economy is bouncing between 0-2% GDP with no upward momentum.  It appears that we are falling to around 0% (the bottom of this cycle) at the end of the year.”

The Freight Market Doesn’t Lie!

The government economy gurus blamed the contraction on “weather” and decreased government spending.  This is the equivalent of your brother-in-law telling you for the tenth time why he can’t pay you the money he owes you.  It all just sounds like blah, blah, blah, blah at this point.  It is however more reassuring than “We are total morons and we have no clue what we are doing.  We are hoping things get better soon, but don’t expect it.  Check back with us in three months and maybe we will be smarter then.”

While the government was claiming the number was not that bad, some economists say the number could have been lower than -1.0% due to changes in the GDP deflator.  However the trend has been to revise the GDP up from the first estimate, so it would not be a surprise to see a final number around positive 0.3%.

What Now?

The recent January economic numbers have been more positive, so it doesn’t appear we are headed for the mini-recession that I expected at the beginning of last year. It should be noted that no economist on the Wall Street Journal panel forecasted a GDP lower than 0.9% just two weeks ago.  To all those economists who forecasted 2% growth for Q4: You got some splainin’ to do!  Here are the current 2013 GDP forecasts from my economic panel (my 7 favorite economists from the Wall Street Journal Panel):


This looks good to me and I think we can get to 3%in Q4. (So does my favorite economist Jim Meil from Eaton at +3.1%)

Latest Jobs Report

The economy generated only 157,000 in January.  Some commentators had the audacity to say this is positive news and a reason to be optimistic.  Let me put this into terms anyone can understand: this number is AWFUL.  It is TERRIBLE.  It is ROTTEN.  It is APPALLING.  It is ABYSMAL.  It is, okay my thesaurus ran out of words, but you get the idea.  Let’s put this into perspective. If you fill Ohio Stadium with people and then add another 50,000 (half-filled again), that’s how many people went back to work in January.  But there are over 22 million people looking for a “regular” full-time job.  At this pace the unemployment rate becomes a big issue in the NEXT presidential election!

Since my last post on the problems measuring the total unemployment rate, I learned about the SGS Alternative Unemployment Rate calculated by Shadow Government Statistics that attempts to measure just that.  The SGS rate was at an all-time high of 23.0% in January (unchanged from December).  If this is true, it should scare the hell out of us.  The unemployment rate peaked at around 25% during the Great Depression.   And President Obama just disbanded his “Jobs Council”?  Somebody in the government got some splainin’ to do!

Model T Update:

The model is predicting an S&P 500 Index peak of 1550.  If the market has not reached 1550 by May, then consider making a move at that time.  Some commentators are urging people to sell off now.  This is common near the end of a run, but I do think the market has some steam left.  On the other hand, the Model T has shown a variance of +/- 2%, which means an S&P of 1519, could be the top. The market closed at 1512 today, so we are now very close to the bottom of the “sell” range.