Something had to be done!

These same writers respected and honored those that protested against George W. 

We have whackos on both side of the discussion (I can say this since I am exactly in the middle, despite Obama’s claim to that position), and the radical left has just as many protesters  as the radical right (think of the evils of Hitler versus Stalin or Abbie Hoffman versus the right-wing version since I can’t think of who that would be).  The radical left has thrown just as many bricks through windows as the radical right.  But 99.9+% of the protests against Obamacare have been peaceful and directed at the specifics of his new legislation.

Maybe we should have a rational conversation about exactly what Obamacare is and will do.  Let’s stick to the specifics and look at the “savings” that it generates.  A bill that excluded “pre-existing conditions provisions” in insurance would have passed both sides of the isle, but would have not changed the basics of our health care system.

This bill will screw up our health care system even more than it is today (the advocates always say that something had to be done – but never consider that it is possible to make it worse).  Both sides limited their thinking to either a single-payer system or status quo.  There were so many changes they could have made to actually move to a system where people managed their own care in a transparent, liquid system with plenty of choices and competition.  But this legislation will move us closer to a single-payer system – the efficiency of the DMV combined with the compassion of the IRS.

What is the new law?  Where can we see exactly what the 2,400 pages in the new legislation actually are?  The plan has certain provisions that must be enacted within 90 days – will the administration achieve this mandate or just shrug it off to operational inefficiencies? I think the later.

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Boston's Big Dig versus Health Care Bill

As the administration keeps on insisting how the Health Care Bill will reduce our deficit, let’s look back on the Big Dig project in Boston.  It rerouted the chief highway through the heart of Boston into a 3.5 mile tunnel under the city.

The project was estimated in 1985 at $2.8 billion.  But alas estimates as of today are that it cost $22 billion.  Like our health care plan, this project was plagued with graft, corruption, bid-rigging and special deals with and for the unions.  The largest concrete supplier was charged with delivering sub-standard product.  A fatal accident resulted in a 3 ton concrete panel falling on a car in 2006.  And there have been thousands of leaks in the tunnel.

So back to health care.  The Big Dig was small time in complexity and ramifications compared to our nations health care system.  If government messed up this highway construction project so badly how do you think they will do with the far more complex and costlier federal health care system?

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Hate crimes

Why do we care why some thug  beats up your friend?  If they kill or injur your brother does it really matter that it was done because he disliked him personally or because of his race or sexual orientation?

Hate crime laws have been adopted at the federal and state levels that increase the penalties for crimes committed when the motivation is race, color, national origin, religion, sexual orientation, gender, or disability of the victim.

The Federal Hate Crimes Bill, which is also known as the Matthew Shepard Local Law Enforcement Hate Crimes Prevention Act, is named in honor of Matthew Shepard, a gay college freshman, who was beaten into a coma in 1998 in Laramie, Wyoming because of his sexual orientation. He died five days later, and since then, his tragic death has been used as an example of the crimes hate can cause.  It was passed in 2007.  Most states had this kind of legislation in effect prior to the federal legislation.

If you assault me should you serve less time in prison because I am not gay and am not a minority? Not if  it is my broken scull.

Sen. Orrin Hatch (R-Utah) pointed out that, “Those who perpetrated the Shepard murder in Wyoming are already sentenced to death or in prison for their lives under state law…There is no evidence that state governments are incapable of prosecuting these crimes or that they are failing to do so.”

Proponents of the bill claim that hate crimes deserve a higher punishment because they not only victimize one individual, but an entire group of people based on their beliefs.

Here is how we should handle hate crime?  Let’s hit people with the full weight of the laws that are already on the books.  We don't need a special law that says you can't beat on gay people for being gay, because it's already illegal to beat on people period.

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New York State Financial Problems

A discussion in the New York Times about the challenges in solving the New York state budget deficit.  The same issues are impacting not only California and Illinois but most other states.

California has some bright people running for Governor with outstanding business success.  But California and New York states are both huge institutions that are incapable of balancing their own budgets.  And I am not sure what even Meg Whitman who was so successful at eBay will be able to do that the Terminator was not able to do.

These governments make long-term promises that frequently underestimate the costs and the adjustments their citizenry will make (like moving out of the state if you are paying the bill or moving into the state if it is a better entitlement program that the neighboring state).  But once these promises are made they are almost impossible to undo.

And these states all have public employee unions that have long-term contracts that pay their employees far more than the private sector.  These unions are running things and have long-term binding contracts.  These unions won’t accept a more reasonable compensation package and they won’t go away.

Here is the critical difference between a public-employee union and a union representing workers at a steel company, construction or glass company in the private sector.  In the private sector, unreasonable unions drive the company out of business, and the jobs eventually go to non-union competitors or overseas.  That is why union membership has consistently dropped in the private sector (to about 7.8%) while public employee membership (36%) has grown so dramatically since the 1960s.

What do we do?  We need a bankruptcy process for the states (which is not available like it is in the private sector or even for counties and cities).  We need a vehicle for tearing up these union contracts and replacing them with compensation packages that are no higher than the public sector.  And we need to be working on this now so we don’t have Congress putting together a last-minute bailout when New York or California can’t pay their bills (which is not too far off).

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Chinese bashing - then and now

It was 1880 and the California economy was bad.  The Gold Rush was over and the Trans Continental Railroad had been completed.   And many Californians blamed the Chinese.  Why?  Because the Chinese were willing to work for lower wages, they were willing to work longer hours, and they were tough to compete against.

So what is different today?  The worker in China is willing to work for less than the labor workers in the US, willing to work longer hours and is hard to compete against.

In 1880 the unions fought for and won the Chinese Exclusion Act (signed by a Republican President) which singled out the Chinese for very restricted immigration into the US.   And in California they pushed through even more discriminatory legislation at the state level.

Much of the Chinese bashing was led by labor unions.  And it has deprived the US of the benefits we would have realized with more Chinese immigration.

Much of today’s China bashing is still led by labor unions.  It is not nearly as violent because your average Jimmy Hoffa thug can’t beat up the hard working factory workers in China like they used to do in California in the 1880s.  But our Democratic leadership owes our unions big time and you can be assured they will assist in the anti-Chinese legislation and initiatives just like the favored treatment they gave the unions in the Health Care Bill.

Since the 1880’s there has been more immigration discrimination against the Chinese than any other ethnic or religious group. 

This story is partially told in the bestseller Shanghai Girls tells (from World War II on).  But there was plenty of other discrimination that is not heard about nearly enough.  The unions hated the idea of having to compete against the industrious Chinese and they convinced our government to discriminate against this group for over 60 years.

Perhaps we should simply strive to work as hard and as effectively as the Chinese.  And while we’re at it, let’s drop the racist, anti-competitive rhetoric. 

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Medical Ethics

The medical community is part of our health crisis.  The following ethical requirement for doctors contributes to the problem “Doctors have a duty to prescribe the most effective drug, even if it costs more.”.

The doctor has an obligation to consider and discuss costs with the patient but not to make the decisions about prescriptions unilaterally (my opinion). 

For example if Pill A is 87% effective but costs $50 per pill and Pill B is 86% effective but costs $10 per pill guess which one I am going to purchase.  According to the ethical requirement the doctor always chooses the more effective prescription no matter the cost.

Costs matter to me and when the patient is not making the decisions based on their individual trade offs we will spend far more than we should.

If your insurance plan or the government is footing the bill most folks will pick the more expensive option.  If you are paying the bills yourself you will usually pick the pill behind door 2.

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Pre-existing conditions removed from all insurance.

The buzz has it that the follow on bill for insurance reform will eliminate pre-existing conditions for life insurance, car insurance and fire insurance.  It will save consumers billions.

Why pay for insurance before you need it?  Under the new Democratic program you obtain and start paying for the insurance when you need it (just in time).  You have a car crash and then you go and sign up for car insurance, you house burns down, you then drive down to your Farmers Agent and sign up for fire insurance (retroactively). 

But the best deal of all is that you wait until your spouse has died unexpectedly.  Then you and your children go and purchase life insurance.  For only $100 per month you can get many millions of coverage.  Why pay for life insurance for several d years in advance when you can wait until you really need it?

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St Marys????

Which St Marys is in the NCAA men's tournament?

Saint Mary's College of California,
St. Mary's College (Delaware),Wilmington, Delaware
Saint Mary's College (Indiana), Notre Dame,
IndianaSt. Mary's College, Kansas,
St. Marys, Kansas
St.Mary's College (Kentucky), Lebanon, Kentucky
St. Mary's College (Baltimore) now known as St. Mary's Seminary and University.St. Mary's College of Maryland, St. Mary's City, Maryland
Saint Mary's College (Michigan), Orchard Lake, Michigan -- now a college of Madonna University College of Saint Mary, Omaha, Nebraska, an all-woman's college
Saint Mary's School (Raleigh, North Carolina)

I don't know who to root for?

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Congress seeks to reduce costs through simplicity

The ability of our government to simplify health care and make it follow common sense allows those of us not in congress that express our opinions.  Ask your congressman or senator if she supports this provision quoted directly from the bill…..

“(II) in subclause (V), by striking

“a Federal Stafford” and all that fol-

lows through “section 428B” and in-

serting “a Federal Direct Stafford

Loan under section 455(a)(2)(A), a

Federal Direct Unsubsidized Stafford

Loan under section 455(a)(2)(D), or a

Federal Direct PLUS Loan under

section 455(a)(2)(B)”

 

And while you are at it, ask your congressman how this is going to reduce the federal deficit.

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Health care is hard enough to get right.

Health care is hard enough to get right.  So let’s confuse the matter even further with a bill called “Health Care and Education Affordability Reconciliation Act of 2010”.

Real health care reform is just too easy to confine one bill to.  After all health care only represents about one sixth of the US economy.  So why not mix it up with the other service the government has ruined with subsidies – yes college education. 

Net result we can get more college graduates (after six plus years of study)  in Ethnomusicology working at minimum wage, who now can afford health care via this bill.  We will give them government subsidized apartments and houses, pay them to have more children and not even worry that they are from another country.  A sure fire way to reduce our deficit.  Before you know it we may be competitive with North Korea.

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Shouldn't we know the health care bill specifics?

Wouldn’t it be reasonable for the public and especially the congress to know the specifics of this health care bill before it is passed?

Some fundamental questions that the public might want to know:

1)       Does this plan provide free health care for illegal aliens?

2)      Does this plan pay for abortions?

3)      Do union health care programs get special treatment?

4)      What costs are being jammed down the throats of different states?

5)      How in the heck is it going to force hospitals to operate more efficiently?

6)      When the House passes the Senate’s bill will the public already know what the agreed package of “fixes” will be?

7)      What in the heck is this “health insurance marketplace” that is proposed.  Sounds nice but heath insurance is the last kind of business that any sane person would want to enter today.

Too bad Washington will try to hide most of this from us and do what is right for us yet is so unpopular.

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Health Care Prescription #7

Our hospitals are required to serve all.  If you don’t have insurance but need emergency care we as a society humanely provide that service (at the expense of those actually paying for health care and taxpayers).

I would add one simple provision.  If you are treated in an emergency room and do not have health insurance or an ability to pre-pay then you must show proof of citizenship.  If you have no proof then you get sent back to your own country (after we treat you).

Very few will like this including the health care industry because they do not want to be in the border control business.  It would also require some form of fake identity card that can not be purchased down at the liquor store for $100.

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Government tackles fat kids

Fat kid management at the highest levels.

The federal government has done such an outstanding job of managing its bloated budget, fixing our health care system, and regulating our banking system that they have free time on their hands.  Michelle Obama announced today that she is taking on the challenge of taking a few pounds off our fat kids.    

The assumption that the federal government should solve every one of our problems is in itself a problem.  Fat kids are a challenge but their parents need to solve it, not the federal government.

 We need our government to keep it simple and work on those few matters that only they can solve, like an unsustainable federal deficit, a bankruptcy system for our states and improving our financial regulations and health care structure.  Once they get those problems cleaned up then I invite them to come back and let’s discuss solving obesity in children.  But even then I would undoubtedly tell them to leave us alone.

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Supply and demand

Let’s go back to basics.  When you lower your price, customers will want more.  If you increase your price,  customers will want less.  Economists call this the principle of “supply and demand”.

So if you subsidize house purchase by giving me tax credits and making it less expensive, I will buy more houses.  And if you subsidize my use of health care by making employer health insurance a tax-free benefit, I will use more health care services.  And if you subsidize me going to college to study Ethno Musicology, I am far more likely to go to college and study Ethno Musicology than perhaps becoming a plumber.

All these subsidies have noble causes.  Better health care, better education and better housing.  The problem is they eventually have just the opposite impact.   With subsidized home ownership prices went through the roof.  With subsidized college education, students disregarded tuition costs and did not fight for lower alternatives.  With subsidized health care, nobody cared what an MRI cost.

 Let’s try eliminating all these subsidies and let the market take care of managing our resources.  We will be far better off – and prices will get back to reasonable levels.

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Health care prescription #6

If one had a pre-existing knee problem and this was deemed a "pre-existing condition" then for most insurance companies the patient not only has to foot the bill but does not get the advantage of the insurance-negotiated “customary and reasonable” prices.  So if you have health insurance for everything but joint surgery, and you need a knee replacement, the anesthesiologist might charge $2,000 to the insurance company, but absent insurance coverage he might charge you $8,000.

Let’s change this.  Let’s mandate that insurance companies negotiate for price on their clients behalf even if there is an excluded coverage for a pre-existing condition.  They have already negotiated prices and so this would only involve a small amount of additional administrative work.

I have spoken before how the self-insured get killed by prices that are many times those charged to the government and insurance companies.  The self-insured don’t pay a 10-20% premium; they frequently pay a 300% premium.  The folks have no lobby, and many times they don’t have the ability to negotiate up front, because the service provider is one of the minor components of the health care package – say the laboratory work.  Try calling up the hospital lab and even getting a return phone call when you about negotiating price.  If you did manage to negotiate with a hospital (which is very tough to do) that does not mean that you have negotiated with their independent lab.

I suggest that the insurance companies be allowed to charge a surcharge (say 10-20%) for the cost of this additional processing, because the net savings would be huge.

 

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California’s College Dreamers

California’s College Dreamers.

This article speaks to two issues.  American’s belief that every kid is “entitled” to college.  And politicians use of defined benefit pension programs that no one can afford.  Show me one non-union private company in America that still provides a traditional defined-benefit pension program.  Business moved long ago to 401K type programs where both the employee and to varying degrees the employer contributed to the retirement program.  If the stock market goes up, the employee does better, if the investments go down then he has to work a few more years. 

But government and union dominated companies alone persist in keeping defined-benefit pension programs.  And guess what happens when these programs over promise and don’t have enough funds to pay the commitments they have made?  You guessed it; the federal government comes to the rescue. 

The notion that a California firefighter can work from the age of 20 to the age of 50 and then retire with 90% of his salary for life just does not compute.

College costs have been driven up by these subsidies.  Yes, subsidies eventually increase costs rather than reduce them.  A combination of federally guaranteed student loans and state funding of $2.6 billion in California to the 10-campus system have allowed the costs to go up faster than they otherwise would have.  Absent these subsidies,  students shop around far more and push back on high prices.   We have seen the same impact of subsidies in health care and home-ownership;  the subsidies make the service more expensive rather than more affordable.

So California is going broke and the federal government is experiencing defaults of about 40% on their college loan guarantees.  These California Dreamers are protesting the symptom rather than the root causes.

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Keep the FCC out of disputes between cable companies and content providers.

Cable group asks US FCC to end fee disputes and require binding arbitration.

Are you serious?  Keep the government out of these disputes.  The cable companies versus the content providers never get down to actually negotiating until the last minute anyway.  Binding arbitration is just a make-work program for attorneys.

And so what if we miss “Desperate Housewives” or “The View” for a few days? 

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Health care prescription #5

Let doctors get reimbursed for phone, internet and video conference consultations.   Right now under most insurance plans, a doctor only gets paid by the insurance company if the patient comes to the office.  With video conferencing and our ability to do many tests ourselves at home, many of these  consultations can be done over the phone at a far lower cost.

For example, a patient with a high red blood cell count that periodically needs to have blood removed to reduce the viscosity of her blood stream could measure her own red blood count at home and schedule a phlebotomy (yes – bloodletting has a beneficial effect for a few patients) when the RBC reaches a certain level.  Today, the patient visits the doctor too often and this uses resources (office space, nursing, administrative staff, and the insurance company resources) more often than needed.

No big government agency is needed for this change so the central planners won’t like the idea.  The socialists want to take care of you rather than you playing a major role in managing your own health and finding ways to keep the price affordable.

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A national identity card for workers?

Is it a surprise that our system makes it far more likely to let an illegal immigrant work in the US than to misidentify a legal worker as an illegal immigrant?

Politicians (both left and right) really don’t want to create a system to keep out illegal immigrants from our work force.  The right wants cheap (and hard-working) labor and the left wants to expand their  voter block.  Keep in mind that I think these workers are willing to work jobs that our average American-born shies away from (in other words he does not show up for the tough and dirty jobs). 

But this is not rocket science.  We need to simply create a national identity card that includes biometrics, and finger prints and we could actually manage who is working in America and who is not working here.  After all we did send men to the moon.  We need to allow guest workers in this country, but until they become legal citizens I don’t want them voting,  protesting (if you don’t like it go home) or getting government-paid health care. Nobody wants big brother tracking where we work, but guess what?  Big Brother already knows where we work.  So we might as well get the benefits of actually managing and tracking who is entitled to work here and who needs to go home.

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Health care prescription #4

This is counter-intuitive. Let’s tax health care benefits just like we tax wages (and reduce other taxes to compensate).  Back to basics – the more we tax something the less of it we get; the more we subsidize something the more of it we get.

The more we subsidize health care (by making health insurance tax-free compensation) the less employees have an incentive to fight for lower prices and to shop around.  Also, to the extent companies can give a dollar of tax-free benefits it is the equivalent of giving $1.50 of taxable wages (for someone in the 35% marginal tax bracket).  So when one runs a company and is trying to get the most after-tax benefits to the employees for the dollar spent one uses health care benefits rather than higher wages.

But company-run health care programs are not very efficient either.  They are clearly more efficient than government-run programs but not nearly as efficient and effective as a program predicated on an individual spending his own money.

Out of my prescriptions offered to date this is the least likely to be understood and endorsed by our pointy-headed politicians but this prescription would still be effective as one partial solution to getting our health care system back on track.

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Another example of excellence in socialized medicine!

Last week Kane Gorny, died of dehydration while in a leading British teaching hospital – his nurses evidently forgot about him.  So much for excellence in nationalized health care.

And of course in most countries you will have a tough time suing the government for its negligence.  This is referred to as “sovereign immunity” and goes back to the days when one could not sue the King of England when he did you wrong.

But there are times that you can sue the government in the US, however it is a tougher road to travel than litigating against a big corporation or hospital.  The government gets stubborn and will spend $20,000 to keep from paying you $10,000.  Bureaucrat’s reputations are on the line and they will spend bucketfuls of your money to protect their personal reputation.

Much of the debate about health care in America has been about medical malpractice reform.  That is an important subject and we need reasonable limits on what the payouts should be.  But even if the surgeon amputates your left leg when you needed the right leg amputated, his medical malpractice insurance company will fight to reduce what you should receive in damages. You will have to hire an attorney for the fight and plenty of medical experts (quite expensive) and even if you win your attorneys and experts will receive a big chunk of the judgment. 

Interestingly, if a 25 year old financial analyst (earning $200,000 per year and with a family of four) loses his one remaining good leg the “damages” will be substantially more than a 60 year old retired man that also loses his good leg.  Because the jury is typically instructed to calculate the number of years remaining of expected salary times the expected earnings per year.

But in America patients that have been damaged by lousy (not just slightly poor) medical care have the chance to receive compensation.  If as a society we simply stated “tough luck”, that would reduce costs, and probably lead to sloppier care.  I doubt if many Americans want to see the patient that loses his good leg not get compensated but there is a cost to it that is greater here than in nationalized systems.

Much of our controversy has related to “punitive damages”.  These are additional awards by the jury from the defendant to the injured patient which are intended to reform or deter the defendant and others from engaging in this type of sloppy medical care.  These punitive damages are in addition to the actual damages and are intended to “send a message” to the defendant.

But if the medical mistakes were  unclear or just bad luck most juries are reluctant to punish the doctors that they generally trust.  Except we still hear stories where a jury awards $100 million punitive damage award to a family of a deceased patient.  These awards typically get reduced by the appeals court and in many states the legislatures have set maximum punitive damages as a percentage of the actual damages.

You won’t see the family of this Brit receiving any punitive damages and they may not even receive any actual damages or payments from the government at all.  The British system saves two ways – lower medical malpractice payments and they can cut corners at will.  Not a great way to lower costs.

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How should it work if your government goes bust?

If I invest in a corporation or an LLC all I risk losing is my principal.  I can’t invest $100 but lose a million.

But how should it work if your government goes bust?  Iceland is facing this question today and Greece and California must deal with this question soon.

Many of the government liabilities are based on decisions made while I was a citizen.  So during my lifetime I was a citizen of California for about 36 years.   So should I be on the hook for 36 years worth of their unpaid debt?  I sure hope not.  Maybe we should only count my adult years as a California citizen; this reduces my exposure to only about 20 years – but it reduces everyone else’s exposure as well.  So I might not be better off with this interpretation.

Liability in corporations in limited to what one invests but perhaps we need a system in government that results in its citizens being more accountable.

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Health care system prescriptions #2 & #3

Our first prescription solved the wholesale drug pricing problem.

But here is the second big problem and it also involves pricing.  The last thing I want is the government to set prices;  that would be a disaster.  But we have a major health-care pricing problem today.  Everybody from doctors to hospitals to MRI centers to pharmacies charge different prices to different customers.  That is OK until it is taken to the extreme.  Plus these service providers make it very hard for one to know what their price is (the last thing you will generally see for a pharmacy is what they charge for Xanax and the last thing you will see on a hospital’s website is what their daily charge per hospital room).  And try calling them up to get their price.

First, let’s consider the different prices.  An uninsured but credit-worthy (in other words one who is paying for her own care) patient might pay as much as five or six times as much for a night in the hospital as the hospital bills the US Government for a Medicare patient.  But in a hurricane where a gas station charges one customer five times what they charge another customer, the gas station is convicted of felony price gouging.   But the US Government condones this price gouging when it suits their pursuit of  a single-payer health care system.

So consistent with prescription #1, I would allow health care providers to set their own prices.  But I would set a price range they could charge one group of customers versus another group at 100% - 120%.  If you are going to charge the US Government Medicare patients $100 for a procedure you can’t charge me as an uninsured patient $500.  In fact you can charge me no more than $120.  So you can’t rip me off to subsidize Uncle Sam’s patients.  If you want the US government business price your services accordingly – if you don’t then price them a little higher.

Prescription #3 is transparency.   I propose that health care providers must post on the internet what their price ranges are for their services.  Doctor’s visit $50 - $60.  MRI $400- $480.  One night in the hospital $400 - $480.  You get the idea.  But don’t gouge me with a $500 service that you give to the other guy for $60.

Transparency would allow me to shop around for a fair price while considering other factors like proximity, convenience, office hours, experience in this procedure and overall client reviews (a later prescription).

The insurance companies will not endorse these “prescriptions” because it diminishes their role and their power.   Today I must get health care insurance simply because without it I get gouged on each and every service that I require.  I am fine with paying 20% more than the “big guys” but don’t charge me five times as much.

We need to budge the health care system towards one where patients manage far more of their treatments versus their costs.  We want patients to ask their doctor “Wouldn’t an x-ray work just as well as an MRI?”  We have a system where the customer could care less about price (because they are not paying the bill) and hence they only demand the best service that money (other people’s money) will buy.  And by the way give it to me NOW.

You might sense that I believe in a system where patients play a much bigger role in their treatment and consider not only convenience and effectiveness but also cost.     Today cost is not a consideration for most patients.

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Health care system prescription #1

You may have guessed that I detest the notion of a single-payer health care system in America and I hate the idea of adding an additional 31 million Americans to a paid-for-by-the-government system.

But our system is broken.  We need a series of pragmatic changes that will move us towards a market-based and less expensive health care system.

Here is prescription #1.

The drug companies around the world spend billions to develop and test new drugs which can do marvelous things for one’s health when you need them.  Let’s say Big Drug Company A develops “XXextra”, a cure for stupidity, at a cost of $3 billion.  This includes early conceptualization, lab work and extensive testing along the way.  This does not include the billions that it has already invested in drugs that were never good enough to come to market and were scrapped.

But when Big Drug Company A has a winner and it is approved by the regulatory agencies around the world it must decide on how to price its product – a fundamental marketing decision.  Its marginal cost to produce the pill is only $3 per pill – in other words if they simply wrote off the research and development expenditures and didn’t care about paying off any company debt nor making any money for its shareholders it could produce the pill for $3 each and break even.  But why would any company ever volunteer for a business like that?

So as a business the drug company tries to maximize the positive cash flow from its new discovery.  Big Drug Company A starts with health care providers, pharmacies and insurance companies in the US and sell the product for $40 - $50 per pill because the pill has such health benefits and it gets prescribed in mass across the country.

But when Big Drug Company A heads to Canada, England and Germany to sell the same XXextra pill they run across a far more powerful buyer (because of their sheer size and the fact they are a single buyer for their entire country).  The Germans know that Big Drug Company A is doing well in the US and the national buyers  also know that the marginal cost to produce each pill is only $3.  So the buyers each insist on a price of $10 per pill which the drug company eventually accepts.  So the Canucks and the Brits and the Germans get the same benefits for their citizens without paying their fair share.

If the drug company plays hardball with the single-payer health care systems around the world they lose the margin (difference between the $10 revenue and $3 marginal cost) per pill that they would have received.  As a result the drug company either makes less money or loses money; eventually it  loses its capacity to develop the next blockbuster drug.

The answer?  The US government simply sets a price range percentage in which any drug can be sold in the US.  Some deviation is allowed but it would no longer be acceptable to charge Americans five times what they charge Canadians.  So the range might be from 100% - 120%.  In other words the wholesale price of the drug for one customer can not be more than 120% of that for another customer.

 So after plenty of analysis Big Drug Company A decides that the wholesale price of XXextra will be $20 - $24 per pill.  The actual price is still up to the drug company but it can no longer subsidize the rest of the world on the backs of Americans.    Maybe now the Americans are paying $24 per pill and the Canadians are paying $20 per pill but America is not subsidizing everyone else’s health care system around the world.

This idea doesn't require a huge government bureaucracy so the probably left won't like it.   But it is simple and combined with several other pragmatic solutions it would help us get our costs down.

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It takes time to wreck a great economy!

I frequently rag on California.  But I love the state, was born there and have a second home in Northern California.  And despite the odds,  I really hope that it gets its act turned around.  My criticisms of the state are similar to my thoughts on many other states from New York to Illinois (not to mention our federal government), but I know California better than the others and it represents our biggest state economy.  Historically California was built by entrepreneurs from the Gold rush to the Transcontinental Railroad to Hollywood to Silicon Valley.  California’s founders had to get off their rear end and move here to begin with and that self-selected a certain kind of risk-taker.

 

So the Golden State got off to an adventurous and successful start.  But since the early 1980’s a series of policies, laws and regulations have undermined its economic foundation.  These terrible decisions rarely had an immediate impact but the results have been cumulative and are manifesting themselves today in huge amounts of debt and an unemployment rate exceeding 12%.  It takes time to mess up such a good thing.

 

As California increased its graduated state income tax for the more affluent over the years, those hit hardest didn’t move out immediately.  But over time many did move out and those in other states considering a move crossed California off their list of possibilities.  Those that moved out of California rarely came back.  Nationally over 43% of Americans pay zero or negative income tax (for example those that receive the earned income tax credit).  I don’t have the figure for California but it has got to be even higher since the percentage of welfare recipients in the Golden State is more than three times the national average.

 

In an effort to encourage energy conservation, the California Public Utility Commission established an inverted rate structure.  In other words, the more one uses the higher one’s per-unit cost for electricity and natural gas.  So a big user can pay four times as much for his last kwh of electricity as a small user pays for his last unit of electricity.  Granted this may encourage the wealthy to invest in energy conservation but brings the marginal electricity rate to one of the highest in the world.  And since it reduces the price for the poor, it discourages conservation by this group.  The highest cost of electricity in a California home is about four-five times the highest rate in Nevada. One doesn’t pack up and leave the state after one power bill, but the impact of these bad government decisions are collective and add pressure. 

 

Public employee unions have come to dominate government services in California.  These state workers receive substantially higher wages, and far better health insurance programs and retirement programs than those in the private sector.  For example where most private sector employees receive six paid holidays per year most California state workers receive12 (down recently from 14).  But most importantly these union contracts reduce flexibility and make it difficult to respond to a reduction in tax revenues and to adjust the compensation of these workers when needed.  Governor Schwarzenegger’s recent attempt to furlough state workers for one day every other week has just been reversed in court.  So now these days off will likely end up as bonus vacation days.  Nobody left the state after another state job was unionized because the results were not immediately felt during the good times.  But this kind of nonsense eventually led to a far bigger budget deficit and a few more U-Haul trucks leaving the state with furniture than entering the state.

 

The regulations just kept getting more complex and more intrusive in California.  For example, to lend money to more than one person per year (say $10 to your brother and $20 to your sister), one needs a license under the California Finance Lenders law.  The private lender says “Why bother in California - I’ll go and lend in Nevada”.  My non-profit made two small interest-free loans to veterans in California and the state sent us a letter ordering us to cease and desist because we did not have a state license. 

 

But more importantly, this means that fewer loans are available to business (the real job creators) except through banks and government.  This kind of dim-witted regulation does not drive out business immediately (especially when banks are actively lending).  But when the banks are tightening like they are today and that private finance option is removed, a few more businesses exit the state.

 

For years California has enacted a minimum wage that is higher than the Federal Government.  Today it is $8.00 in California while the national minimum is $7.25.  Doesn’t sound like much, but if these other laws and regulations have sufficiently irritated the business manager, this may be the “tipping point” that means a few more jobs are sent to Texas.

 

The negative impacts of these actions take years to become visible and frequently decades to destroy a vibrant economy – like slow moving termites eating away at a wooden building.  As citizens (especially wealthy, entrepreneurs and business owners) start to personally experience the bad legislation and regulation, they gradually start to leave the state.  The ones that leave are on average more affluent than those that stay.  So the state has quietly lost the tax and business base that the legislators assumed would sit passively and “just take it”.  On average the welfare recipients stay because California has such an attractive bundle of benefits for them.

 

It is hard for the public and the media to understand the “cause and effect” between bad regulations and laws and their impact because there is such a lag and it is so hard to point to any one factor.  From environmental restrictions, coastal building restrictions, business license bureaucracy, high tax rates, excess regulation, and high electricity rates, it all takes time to be felt.  One piece of bad regulation does not destroy an economy but bad law after bad law will eventually do the trick.  It has taken persistence and consistency by the California left to decimate what was once such an energetic economy. And unfortunately it will take even more persistence to undo the damage.   But before California makes the tough decisions in needs to turn things around I guarantee (and I do not guarantee much) that it will seek a federal bailout.

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Time to sell the US Postal Service

It is time to split up the US Postal Service and sell it to private industry.  Then remove all subsidies and competition restrictions that only allow UPS and FedEx to deliver “urgent” letters to homes across America.

The USPS is already up to $10 billion in US Government subsidized debt and the market has changed radically.  We need radical surgery not the typical government tinkering and while we are at it let’s remove yet another public-employee union with pay and benefits double what their neighbors are being paid.

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