The Laughs on Them

Obama's healthcare legislation means, amongst other things, that the U.S. healthcare market for pharmceuticals and medical devices will be smaller than it otherwise would have been.

Because the U.S. market is such a large part of the global healthcare market, this means drug and device companies will have less incentives to develop new products.

For years, advocates in other countries where socialized medicine exists have hoped that America would also adopt socialized healthcare out of intellectual solidarity.

But in reality, those nations have benefited greatly from the larger global market America's healthcare system provides - benefiting greatly the socialized healthcare systems of other countries. Moreover, many travel to the United States to get medical treatment. Canadians, who otherwise are subject to government-created wait lists, often come to the United States to get more timely care. That safety valve will begin to diminish.

Other nations may rue the day they got what they wished for with America adopting socialized medicine.

Obama's America

In the span of a few days, two seemingly unrelated events speak more to Barack Obama's view of an America that will be diminished: Obama signed into law his healthcare legislation, and his administration reached agreement with Russia to reduce nuclear weapons.

What came to my mind was Britain's decline in the post World War II period - a decline in economic growth as the country pursued national healthcare and a broad socialist agenda and a decline in global power as it reduced its military commitments to reflect its diminished economic prospects.

And now Obama is pursuing similar policies, with likely similar effects if not reversed in upcoming elections.

Intellectually, both socialized medicine and nuclear disarmament derive from leftist ideology and policies as espoused for many decades. Financially, the higher government spending on healthcare means less money is available for military spending.

I always thought it remarkable and sad that Britain voted for economic and political decline after World War II.

I don't believe that most Americans felt that was what they voted for in 2008 in electing Barack Obama.

But it is what they got.

Audacity of Power

Barack Obama was finally able to use the power of the Democrats' large majority in Congress to get his healthcare legislation passed. For months, many complained of Republican opposition to the legislation as the reason for it stalling, which ignored that the Democrats had it solely within their power to get it passed.

And they used that power, despite deep unhappiness in the country over the legislation, as manifested in devastating election losses for the Democrats such as Scott Brown's stunning Senate victory in Massachusetts.

For years, the Democrats scored PR points from the fact that many people do not have healthcare insurance, even though the lack of insurance has often been by choice due to a preference to spend one's income elsewhere and that the lack of insurance is not the same thing as being unable to receive healthcare services due to charity care.

Moreover, the Democrats for a long time fought genuine reforms that would have been very helpful, such as expanding Health Savings Accounts (HSA) and malpractice reform.

Instead, the Democrats wanted their socialized medicine and used their likely temporary large Congressional majority to achieve it.

There is no other way to say it, but many people will die in the coming decades who otherwise could have lived longer because of this law and its consequences.

Fewer new drugs and medical devices will be developed, as denial of coverage by government panels will reduce the willingness of companies and investors to spend the enormous sums of money necessary to bring new medical products to market.

The standard of care will evolve to less aggressive treatment to save money; the decision last fall by panel to recommend delays in getting mammograms will become more common and, in some cases, be driven by the government's desire to spend less on healthcare.

The law includes new taxes and will lead to further new taxes to pay for all the new spending it will entail. These taxes will reduce economic growth, as individuals and businesses will have less capital and incentives to work and invest.

As economic growth is reduced, America will experience permanently higher unemployment. Young adults, fresh from school and eager to begin their careers, will find diminished opportunities. The economic performance of western Europe the past 30 years, with higher unemployment in general and in particular for younger workers, demonstrates where America will head.

Last, but not least, the law is an affront to the founding principles of America. The Declaration of Independence speaks of the inalienable right to life, liberty, and the pursuit of happiness, held equally by all. This means that for something to be a right, it cannot infringe the rights of another person - otherwise there is no equality of rights. The taxes needed to finance, and the government coercion to force people to live by its healthcare dictates, demonstrate why there is no right to healthcare - since some persons' "right to pursue happiness" are denied so others can get their subsidized healthcare.

For all of this, it may very well be the worst piece of legislation in American history.

Incentives Matter

I thought it would be useful to make explicit one of the central themes that runs through many of my columns, namely that incentives matter.

This means that the incentives people, institutions, governments, and countries face heavily influence what they will do.

For example, if a person has a health insurance plan in which all or almost all costs are paid by the insurer, and no costs or almost none are paid by the consumer, then the consumer has an incentive to seek additional health care and no incentive to minimize spending. The result: health care spending explodes.

Likewise, if that person has an Health Spending Account, they do have incentives to keep costs down, and the result is lower health care spending.

If the government raises taxes, people have an incentive to work less and shift income to lower taxed areas. If taxes are lowered, the incentive to work increases. The empirical evidence shows this is true.

If consumers reduce their purchases of paper products, such as paper towels, then forestry owners have an incentive to sell their land, currently devoted to growing trees to be harvested and re-seeded for new growth, for other uses such as housing developments, golf courses, or industrial facilities.

So buying less paper products means there will be fewer trees in the world. That is not what the advocates of reducing paper consumption hope for, but since incentives matter, that is what will happen.

All collectivists run into this problem. Try as they might to direct people to act or live as the collectivist desires, people will be influenced by the incentives they face.

So tax-free health insurance leads to exploding health care costs; higher taxes leads to less work and economic growth; and reduced demand for paper leads to fewer trees. None of these outcomes are what the collectivist seeks. But it is what they create.

Three Letters that Make a Difference: HSA

Barack Obama and the leftists in the Democratic party are in a desperate struggle to ram their massive increase in government control over health care down through Congress. Never mind the staggering election defeats the Democrats have suffered related to the issue, never mind the plans deep unpopularity - Obama and the left are so anxious to force their radical expansion of government into health care that they are trying again.

They very well may succeed by bribing enough scared Democratic Congressmen with jobs and/or pork spending.

Meanwhile, Mitch Daniels, the Republican governor of Indiana, writes about his state's success with Health Savings Accounts (HSAs). HSAs help eliminate the distortions that government tax policy have long created in health care: by subsidizing employer-provided health insurance, the tax code has created health insurance policies that shield consumers from the real cost of healthcare. And in the process, driving up the demand for healthcare.

HSAs entail an employer depositing a certain amount of money in a tax-free account (the State of Indiana deposits $2,750). Employees use this $2,750 to pay for health care expenses. Amounts above that are covered by insurance with co-pays and out-of-pocket maximums. The employee keeps any portion of the $2,750 not spent on health care.

Under this system, employees have an incentive to be thoughtful in making health care decisions, since they bear the cost from more health care spending and reaps the benefit of spending less.

The result has been much lower health care spending, the accumulation of wealth by employees from unspent balances, without adverse health effects.

Sounds like a great outcome. And it is.

But the Democrats have been fighting a battle against HSAs for years precisely because they were and are afraid they will work - because HSAs help provide a market-oriented solution to the healthcare problem without further government control of health care. Instead, the Democrats have been positioning for years for the opportunity to expand government control of health care and have opposed ideas that would improve healthcare based on less government control.

The Indiana success story with genuine healthcare reform shows we have not really pursued policies to improve healthcare in America where freedom and the market are central to the solution. Let's use our founding principles on individual freedom, as reflected in the Declaration of Independence, be the source for solutions to our problems - and not the ideas imported from European-style collectivism.

Who Needs Prisons Anyway?

I have written a number of columns on the effects by state governments to release prison inmates as part of efforts to save money. Unfortunately, we are now seeing the predictable results.

The New York Times reports on the backlash that is growing from these efforts. In Illinois, of the 1,700 inmates who were released early, 50 had committed new crimes within the first three months (no doubt this understates the number due to undetected criminal activity).

As government has moved away from securing our rights to "life, liberty, and the pursuit of happiness" and to instead providing welfare benefits, the costs of the welfare state use tax dollars that would otherwise be available for criminal justice. As a result, states are defaulting on their primary responsibility to protect citizens from crime through these inmate-release programs.

Chalk up robbery, rape, and murder as another cost of the welfare state.

Milton Friedman Right Again

Milton Friedman, the Nobel-prize winning economist who was one of the intellectual leaders in the rise of free market economics in much of the world over the past 35 years, once described minimum wage laws as among the most racist laws in America.

He said this because by artificially raising wages above what they would be in a free market, minimum wages laws reduce the demand for labor - and hence keep people unemployed who would otherwise be employed. The people most likely effected by minimum wage laws are those with less job experience and skills, which tend to be disproportionately from minority groups.

Recent data from the Bureau of Labor Statistics as published in the Wall Street Journal illustrates this terrible problem. The federal government raised the minimum wage by 40%, from $5.15 to $7.25 per hour, from 2007 to 2009.

This huge percentage increase, at a time of recession, has led to an entirely predictable result. The teen unemployment rate (a good proxy for unskilled workers who tend to be most impacted by minimum wage laws) rose from 15% to over 25%. Even worse, the black teen unemployment rate rose from about 28% to 45%.

Teenage employment provides critical skills that are important for improving a person's job prospects throughout one's lifetime. Minimum wage laws reduce the development of such skills through the unemployment they create.

The Democrats do the unions' bidding on minimum wage laws, and in return hurt all unskilled workers, particularly minorities, by denying them employment opportunities.

The Winning Side

Pakistan's capture of the second Taliban leader in recent weeks reflects their desire to have a voice in Afghanistan's affairs.

For years, the United States has been pressing Pakistan to do more to deal with the presence of Al Quaeda and the Taliban in Pakistan. Pakistan's help been limited, with its security service, the ISI, continuing to support the Taliban under the premise that some day the United States will tire of the war in Afghanistan and Pakistan would want allies in Afghanistan.

But after much dithering, Barack Obama decided to "surge" troop levels and seek victory in Afghanistan. So Pakistan's calculation now changes, since accommodating America and working with our ally, Hamid Karzai, may now be the way Pakistan maintains its Afghan influence.

The left bemoaned the lack of allies supporting America. But they missed the key ingredient to securing support - the commitment of the United States to victory. Nations and groups want to ally themselves with the winner, not the loser. And until we demonstrated our intention to win in Afghanistan, others sat on the sidelines.