One of the stupidest things I've ever heard said was uttered by our President over the weekend.
All you have to do is keep your ears open and you'll hear it, too. It is President Obama's claim that the cost of insuring folks for medical care will go down when you take profits away from the insurance companies.
When he announced yesterday, at Hudson Valley Community College, that he had never taken calculus, I wasn't surprised. Were you? Now you can do a lot of high level examination with algebra, but there are limits.
I'll let the mathy among you ask the pertinent question of the graph above. (Hint: it does have to do with turning points.) Imagine if the President had an education or the background to look at the graph above and ask the relevant questions. Instead? We get Hope!™ and Change!™ (Another hint: it does have to do with change.)
The President hates profit. Profit is money that goes to greedy white men. (I believe those are his words. Do I have to search for you?) So, it seems that this is how the President's mind works; if, instead of profits going to greedy white men we could take those profits and put them to use helping--what, non-greedy or non-white?--others.
Profit seems to be the sin of capitalism. If only there was some way to remove profit-taking by capitalists, the system would be fixed. No pun intended.
What do you know about how insurance companies work? Not much? Well, let's just take a look at a thing or two and maybe you'll start asking some questions about how this whole “fixing health care” thing is going to play out.
If you have health insurance, either you or your employer sends a check off to an insurance company on a regular basis. For our examination we're going to send this check off each month and this check will pay the insurance company $100.00 per month, per employee. You have a small business with nine employees, so each month your company sends off a check for one-thousand dollars.
The company that you send your check has one hundred companies it insures, each with ten employees that sends a monthly check for one-thousand dollars each month. That means that this company receives 100-thousand dollars a month from its customers.
In a year this company has taken in 1-point-2 million dollars. And, remarkably, none of its clients had any sickness, doctor visits or emergencies. What is the profit to the insurance company?
See, here's where most people make mistakes about what insurance companies do and how markets for health insurance drive down the costs of providing insurance.
Let us digress.
A trillion dollars is a lot of money. You know that we've blown off any past history this nation has had with its deficits in just the past 9 months. And looking at adding what is purported to be a health care reform--to save you and me billions in health care costs--is humbuggery that is going to further increase our deficits by trillions more. All of this is justified by the Left as an attempt to divert profits from insurance companies from benefiting the wrong people. Instead, according to the Left, by taking profits from insurance companies we will be able to lower the cost of insuring folks against disaster. Because the government will have no need for profits.
Voilá!
Just one problem.
It's a lie.
In our theoretical insurance company above, we saw paper profits of $1.2-million dollars. But is this an accurate number? (I'm not going to get into fixed operating costs, etc. It's a paper company with no claims and no costs other than potential claims. It's a "hypothetical". Don't over think this.)
No. It's not an accurate number. It's too low.
While your cost was $100.00 per month per man, the income to the insurance company was $100,000.00 per month. And what did the insurance company do with the money?
Times are tight right now, but I bet you that if you had a hundred thousand dollars coming in each month--without a need to provide any product of service for that hundred thousand--that it would occur to you at some point that simply putting this money into a big vault is not the most brilliant plan.
A lot of what we believe about our economy is on a scale of what you can learn from reading about wealth creation were you to rely upon such noted fiscal luminaries as the duck pictured here, or a youngster by the name of Ritchie Rich.
That our President has a cartoonish view of how our economy works tells us more about his humble upbringing than any biography of the man can tell us. Years spent in his bedroom surrounded by comic books would tend to lead to a less than mature world view, no?
It is a definitely mawkish view.
But this is the image of the Insurance Industry as promulgated by the Left. Even Jesus—who I have it on good authority never studied calculus, either—understood that this type of hoarding was a stupid idea. But this is the critical nexus of analysis conducted by the Left. And it shows you the complete lack of sophistication of those who have assumed the role of leading us to a new level of government intervention and regulation. The poverty of their thinking is clearly apparent here.
Far from the cartoonish assumptions of the Left, the funds received by insurance companies don’t sit in a vault protected by hoards of green-shaded ogres waiting to deny claims of an unworthy and ungrateful customer class.
At the end of last year it was estimated that insurance companies held $6.8-trillion in assets. In the view of the Left, these were funds that were shipped to vaults held by greedy capitalists. Amazing. These people are currently making law.
Six-point-eight trillion dollars.
Our nation’s GDP for 2008 is estimated at $14-trillion. The asset holdings of insurance companies are roughly half of our current GDP. To suggest that the impact of insurance company assets on our economy is inconsequential is a degree of hubris, ignorance and stupidity that is stunning in its claim.
And yet, your President is telling you that he will be able to reduce the cost of health care by creating a “public” option for health care insurance.
How?
Not “why”.
How?
What I hear from this Administration is a lot of “why”. What I don’t hear is a lot of “how”.
How does removing the profit from the system create gains for the citizenry of this country?
If any of you have a problem with my assumptions, let me ask me for yours. There are a lot of facts involved with the exegesis I am attempting that are elided for brevity’s sake. But these are fingertip facts. If you question any of these assumptions, feel free to either look for yourself, or ask. (Actually, I think the learning moment comes from your working to find these answers yourself. But I’m not against teaching those who haven’t found out how to have their questions answered. My job is to teach and inform, not to cajole. If you’re lazy, let me know. I will supply the answers.)
Before I move on, I need to ask, did I ever tell you the story about the engineer, the cleric and the economist on a desert island? The punch line is, assume a can opener.
There are a lot of a priori assumptions that take place in any discussion of economics. There is, in my estimation, a huge gap in the degree of assumption that takes place in economics than say,
psychology.
How can I state this presumptively? Easy. You can say all you want to say about economics. When the rubber hits the road, all of these are testable and, given Popper’s rules, ultimately disprovable.
Or not.
What happens to those six-point-eight trillion dollars?
That money doesn’t go into a vault.
First, it goes into banks. Why is this important? If you’ve been a consistent visitor here, one of the things I’ve attempted to pound into your head is that money creation—natural money creation—occurs in the banking system.
Second, it is directly invested.
Think about it.
Money creation on the one hand, direct investment in the market on the other.
Six-point-eight trillion dollars.
And our President has never studied calculus.
Does anybody have the math skills to ask the pertinent question?
What is government going to do with the money it collects to provide “free health care”? Is there either going to be a dollop of money creation through the banking system, or a dollop of wealth creation through investment?
What the hell are we going to do when private capital is taken for the purpose of providing private services publicly?
Yet, finally, there is another glaring hole in the logic of the Left. I’ve given you the necessary priors for you to come to the appropriate conclusion by yourself. Before I leave, I’ll give you one last hint: if insurance companies compete for customers, and the greatest earnings insurance companies receive is from their market activities, how can government compete in terms of lowering prices for the same services?
It’s pretty apparent, isn’t it.
And yet, it seems that the “debate” continues. Frightening, isn’t it?
