Saturday, February 21, 2015

The Austerity That (Ultimately) Threatens the U.S.

I cannot speak to the austerity conditions which continue to thwart Greece, for I simply don't know the nature of their services organization in relation to other parts of the economy. However, the long run austerity threat for the U.S. is easier to ascertain, in part due to the unique patterns of a services structure developed after WWII. As a result, long term budgetary concerns could possibly be more pronounced, than some countries which developed nationalized healthcare systems.

How so? Private industries which have evolved around healthcare, are heavily subsidized in ways that are mostly hidden to the public. Not only have healthcare costs become difficult to discern in real time, artificial limitations also involve the most basic surgical procedures and the right to prescribe medication. Around these limitations, immense and costly complexities have arisen - each layer of which was "supposed" to provide solutions to the core issue of artificial scarcity.

Among these layers of complexity, arguments are growing as to who even "deserves" healthcare. Even though some discussions about the "undeserving obese" have occurred in the UK, one can easily imagine a similar rationale here. It is quite a shame that some skills sets were made so sacrosanct, that they now contribute to unnecessary problems in multiple settings. Most people are far more rational than I, because they dare not point the finger at the real source of the problem, for fear of upsetting healthcare professionals among their own peers and kin. I only do so now, because it's almost as if every person alive has become "undeserving" of valuable services!

At the very least, it took a long time for the artificial scarcity of skills restrictions to affect the overall growth trajectories of nations. But that's small comfort now. And yet even though it should be obvious what happened, people still reason that these problems can be overcome without more contribution to supply. Possibly because so many forms of product exist in abundance, the same is assumed of time based services. But what if supply isn't really widespread, meaning a primary product shortage contributes to a low growth equilibrium? Nick Rowe rightly calls supply capacity into question, in a recent post where he writes:
If the apple producer wants to buy ten bananas, but the banana producer only wants to sell six bananas, then only six bananas get sold.
Why would a banana producer only want to sell 6 bananas, if they could easily produce more? Imagine a banana producer in a two product primary equilibrium, who reasons: if I can make my product important enough that it commands ten apples for 6 bananas, then why shouldn't I price, based on those terms?

For a long time the services supply asymmetry wasn't so obvious. Indeed, insurance and government requirements made the problem manageable for decades. What's more, production allocation asymmetries aren't ordinarily problematic in the marketplace if they don't represent core consumption. Just because everyone seemingly has a smart phone - for instance - does not mean the person without one is likely to be at any real disadvantage.

Artificial services scarcity might not be so obvious now, were it not for the fact a larger portion of the population anticipates health costs in the near future. Many of us who mostly avoided the doctor's office for decades, are not sure whether our good fortune will last (and for too many my hasn't). This and a confluence of other factors means primary equilibrium growth is finally threatened by a six (services) banana sales total to a 10 apples (manufacture product) sales total. While some don't find this a threat in moral terms, it is nonetheless a threat in terms of growth potential.

One wonders: is this as far as the supply side argument for healthcare will ever go? If knowledge use for medication and surgery needs cannot be accessed by lower income levels, present day growth cannot be revived to its earlier trajectory. Indeed, the stubborn insistence of central bankers to remain below 2 percent inflation, makes it questionable whether the present growth trajectory can remain on an even keel. Because of the still present danger of the zero bound, future recessions could mean further production setbacks for both services and manufacture.

If the torch for economic responsibility has been passed from the supply side to the political left, the latter needs to recognize the built in growth limitations which services now hold - particularly in healthcare. In the meantime, few mention the American Medical Association as the originator of this quandary, even as virtually everyone else gets blamed for services shortfalls. Among that list but not limited to: illegal immigrants who "steal" needed services from others...poor unwed mothers...the one percenters...and baby boomers who are "stealing" the future of younger generations! As to debts which aren't going anywhere, anytime soon, consider Brad Delong's response to Diane Lim among a recent round of austerity posts. In a six point rebuttal, fortunately he thought to list healthcare first:
1) We believe that medical care is a special commodity - one that should be delivered to those who need it, not just those who can afford to pay for it out of their private means - and thus as health spending becomes a larger part of the economy the proportion of GDP spent by the government on its healthcare programs will grow.
Where to even begin, in response? Of course I agree with Brad Delong that healthcare is among the most basic of commodities. But in the U.S. it has been defined as a special product, and there is no changing that definition in the short term. Special equals exclusive, not inclusive. As a result, any access beyond what is already available will not only remain limited, future access will gradually become more constrained, if no services production reform is allowed to take place.

Fortunately, many individuals have become aware of the long term issue of healthcare as it impacts the deficit. However the reason no progress has been made, is the fact few sane individuals dare to speak to the obvious supply side restraint. This is why I suggest that physicians be allowed to train low income individuals how to heal, for knowledge use systems which will not directly compete with the existing healthcare system. Should this occur, real economic growth will once again become viable, and individuals will gain hope that they won't be completely undone by medical expenses at some point in their lifetimes.

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