Was Medicare Availability Linked to a Black Swan Event?

In a recent post, Scott Sumner looks at the gradual fade out of gold redemption over a forty year stretch in the U.S. Why did this black swan (i.e. relatively rare) event occur, after a long historical period in which gold (and related) standards remained quite stable? To be sure, there are no easy answers. Like Scott, I am inclined to agree with 1968 as an identification point, when the "gold window" was closed to foreigners. And as Scott also reminded his readers: the idea of fiat money as capable of replacing a gold standard, was inconceivable to populations for a long time.

Gold (and silver) standards among nations were particularly tested by WWI in the early twentieth century. Those problems were exacerbated, with the monetary policy stumbles which led to the Great Depression. Even though the path back to a gold standard was broken, fiat money nonetheless implied a changing relationship between national governments and their citizens - a relationship which still has not found real certainty. To what degree does today's knowledge economy matter? Has automation begun to turn the tide toward regression in this regard? How has services expansion affected attitudes toward fiat money?

Perhaps it depends on the services in question, and the degree to which citizens are capable of meeting those responsibilities through their own means. For instance, educational services in the U.S. were built on direct taxation which (excepting Medicare related retirement expectations) generally fall within budget capacities and the reasoning of participants - for better or worse. For the most part, those expectations were adopted in the U.S. before the twentieth century - in other words, prior to when monetary systems moved to fiat representation. In spite of its deficiencies, the transparency of property taxation accounts for much of public education, at local levels.

However, government responsibilities with healthcare needs are not transparent - nor did they really have a chance to start out that way. Substantial changes came about in healthcare requirements in the same time frames which Scott Sumner noted. Much of their current structure was established when taxation systems were expanding and increasing in complexity - hence hidden redistribution and subsidies which go well beyond the central components of the system. Nothing about this vital service role was directly conceived in terms of actual redistribution or monetary flow.

Healthcare often lost access to local coordination, once its most important elements shifted to prosperous regions of the country. Costs do not necessarily match up to the money that's available at any given moment. As a result, quarterly budget imbalances have become more difficult to ascertain, and healthcare accounts get shuffled around like so many bills at the end of the month, when there's not enough money left in the check book. In spite of increased government responsibility, the actual end product - in aggregate - is slowly being trimmed away.

With present day limitation on participating physicians, citizens are becoming responsible for healthcare budgets to a degree which increasingly goes beyond their own budgets. Indeed, the lack of clarity has generated imbalances throughout the economy: imbalances which cannot be addressed until healthcare needs are met and supplied more directly.

There were some interesting similarities between the years Medicare became available to the public, and the years which Scott mentioned (1968, 1971, 1979) as important for fiat monetary representation. I found this quote from Trends in Health Care Coverage and Insurance for 1968-2011

In 1968-1974, only persons aged 65 and over were asked about Medicare coverage. In 1976, Medicare coverage was estimated through reasons for not having health insurance coverage. Beginning in 1978, Medicare coverage was asked of persons of all ages.

Of course, Medicaid and its budget needs are not even considered in this context. One wonders: to what degree did government's new and open ended burdens for healthcare, play a part in the inability to maintain a gold standard?

None of this is to detract from Medicare and Medicaid, which have been lifesavers for so many. Rather, the problem is the way in which this system was conceived, alongside artificial limitations in supply which never should have been considered necessary. If that were not enough, we also got the artificial promises of healthcare insurance to make up the "difference". Granted, some products are worse than health insurance, but not many. As insurance gradually scales back in what it covers, unsuspecting customers will increasingly be left with the tab.

In "The Story of Medicine in America" (written in 1973), a quote which ends the book sounds oddly familiar, in spite of persistent government attempts to settle the matter:

Medicine in America is currently at a crossroads, with the path to the left leading to socialized medicine, the path ahead to the semi-federalized HMO, the path to the right following the status quo. The road the American physicians will choose is still uncertain.

Often we hear that education looks just like it did 100 years ago and is ready for a complete overhaul. Even though healthcare has changed dramatically in the past 100 years, everything about the way it is delivered also needs an overhaul - no less than education. Perhaps - if a lot more people were allowed to practice medicine - fiat monetary policy would not remain as threatening to some constituencies as it is now.