More Healthcare Myths

One popular myth is that the quality of health care in America is worse than in the past.

This is one of those comments that risks becoming a Big Lie, something that gets accepted as true because it is repeated often enough.

Well, the National Cancer Institute indicates that the five year survival rate for children diagnosed with cancer is now 80%, up dramatically from 58% 20 years ago.

That's over a 50% decrease in the chance of kids dying from cancer. Such a transformation doesn't come cheaply, and requires companies to charge high prices and make significant profits to give them the incentive to develop the drugs and treatments which make this life-saving change possible.

So the next time you hear someone bemoaning the profits of drug companies, recognize that without those profits, you, a loved one, or a friend may suffer or die from the drug not developed because of the reduced financial resources available, and weakened incentive, to develop drugs in the future.

Rapacious Corporations?

According to the Commerce Department, corporate profits dropped 20% in the fourth quarter of 2008 from the year earlier. Meanwhile, overall economic activity dropped 6.3%.

So if companies possess the vast powers that the left likes to ascribe to them, how could this happen? Why wouldn't such powerful companies fire enough employees, or cut wages sufficiently, to maintain their profits?

Because this is another one of the Big Lies told by the left.

Profit is the residual claim, after all other expenses are paid. So a given change in economic activity will tend to have a disproportionate impact on profits - both on the upside and downside.

So when the economy grows, we hear complaints about corporate profits growing disproportionately, as if there were something unfair about it. But when the economy contracts, and corporate profits decrease significantly, we hear silence.

Business Matters

The first quarter report on economic activity shows that GDP dropped at an annualized rate of 6.1%.

The composition of that change is critical. Consumer spending increased 2.2% while business investment plunged 38%.

It is one of the Big Lies in the popular understanding of economics that consumer spending is the key driver of the economy. Instead, business spending is, exhibiting much greater volatility.

The key driver of business spending is corporations' and small business owners' assessment of whether they can earn an attractive return in the future, after-tax and after-inflation.

The government's recent assault on business through higher taxes, modifying contracts, the prospect of national health care, and applying political pressure has led businesses to fear they can't make long-term plans and expect to make a profit without the risk of government intervention and confiscation.

In effect, earning an attractive return, after-tax and after-inflation, is much harder for businesses to envision in light of these policies.

The implication: economic recovery will take longer, and growth will be slower, than if the government had enacted different policies that were consistent with the free market.

State of Hope

Barack Obama has now decided he has pushed the doom and gloom scenario for the economy too hard in his efforts to get the "stimulus" bill passed and now wants to tell Americans things will get better. The economy will certainly recover, with or without the "stimulus" bill, but the fear mongering by Democrats, first to win election and now to pass their spending priorities, has hurt investor and consumer confidence.

One canard in Obama's speech bears focus. He criticized the Bush administration, claiming "regulations were gutted for the sake of a quick profit at the expense of a healthy market".

Really? Which ones? The most profound regulatory failure was the opposition by Democrats to restraining Fannie Mae and Freddie Mac, whose politically guided attempts to expand home ownership contributed to the financial crisis.

But Obama and the Democrats have been successful in pushing this Big Lie, so why stop now?