Thoughts of Liberty

I keep saying that the tax structure unfairly harms those who invest in school because it targets people who condense their income into short careers.  Doctors, lawyers and other professionals are in this camp. After further consideration I feel that I owe a clarification.  It is not those professionals that are the first to suffer it’s a little different pattern then that.  The people who suffer first are the consumers of those services.  The high taxes force a pass through to doctor’s patients and lawyers clients and students at colleges and other consumers of these professional goods.   The reason is due to supply and demand and due to investment these people with this level of investment must require a certain standard of living which will be judged in take home pay not pre-tax income which means that they will raise their prices as taxes go up and pass that along (not intentionally they don’t often realize that they are doing this it feels much like inflation it just happens you don’t think about it).  Now this then harms people like poor patients, clients, and students as these taxes pass through.  Eventually this leads to decreased demand and IF supply holds going forward… that is assuming that these tax structures don’t chase off future doctors and lawyers and professors before they make such a large investment in the uncertain realm of class warfare through taxes then the eventual damage to them comes in the form of lower demand.  The final result is less access to doctors, lawyers and professors and other professionals to poor Americans and more access to the wealthy.  So my previous statements while accurate in a sense where not complete and now I have elaborated on them.

The reason the US has been the top economic power house is because of inovation, education and capital.  The biggest threat to the future of the american economy is the problem of a negative national savings!  Capital investment and savings was a major key to our growth.  Capital is a major component of income.  A seperate major issue is the level of regulation on saftey, output, polution, labor laws... these are all great things but at some point we need to realize that these laws add costs to the base of our cost structures and make us less competative in a global market.  The final problem is an unjust and inefficient tax system that punishes good decisions and forces poor choices.  If we don't change these fundamental short comings can we keep our spot at the top of the global economy?  What will happen if we lose that place while sitting trillions in debt to foreign nation

If a market moves towards recession because our capitol stock has grown too small to support our consumption then the necessary response of the economy is to recess and limit consumption until the capitol stock is rebuilt and then resume consumption at the previous rate.  This keeps the market sustainable and prevents a small discrepancy or miscalculation in the economy from causing a full scale collapse. 

If  every time a move away from spending towards capitol stock creates a response from government which offsets the net savings and loss of consumption by consuming and taking on debt then the capitol stock and consumption not only will not ever equilibrate but they will perpetually drift further and further apart until one part of the system can no longer sustain itself, in this case most likely the government’s ability to borrow and consume on a large enough scale to prevent adjustment, this necessarily prevents small recessions at the expense of a currency collapse.

Anytime the government moves from a policy of propping up aggregate demand through debt to allowing a drop in aggregate demand we will have a depression and any time government isn’t willing or able to spend enough quickly enough to slow the fall we will have a depression.  If however, government did not interfere then we would have periodic recession but because the miscalculation would be caught prior to the creation of a major bubble there simply will not be enough error to create a depression and the worst case scenario is then a short recession followed by a stabilized economy.

I say all that to reiterate what Austrian economists have been saying since Keynes really became popular and that is this:  From this point forward all recessions and depressions will be mathematically created by the Federal Reserve.  I say that because they act like a damn on a surging river.  They can control the flow and prevent a flood for a certain amount of time but because there is no outlet it is always only a matter of time before the strain gets to great and bursts the bulwarks flooding those below.   Like a damn with no outlet the actions of a federal reserve to prevent periodic corrections to correct the aggregate supply and demand functions across time will lead to disaster.  

I have no right to influence your social decisions in any forceful or coercive way unless I bear some risk or danger from those choices which you make.  I only bear consequences from individual social choices you make when I am economically liable for them under a social justice theory or when I am a party in some way to the transaction.  Therefore as a matter of property law I am covered and protected from the latter and therefore the former is the only issue of significance.  This means that a social justice theory when it comes to economic responsibility to or fellow citizens for “necessities” or needed luxuries as I call them such as premium health care must necessarily to be just have a corresponding theory  f social justice relating to the social decisions those beneficiaries of the original social justice theory. Those who are aided under social justice theory impose on me a direct cost through my pocketbook which gives me the right to regulate their activity.   Therefore you can either have an economic social justice system mixed with no choice on issues such as who you sleep with or what type of sex you have to the type and quantity of food you place in your mouth or we can abandon that theory and allow both social and economic liberty. 

This will occur through rent seeking regardless of acceptance because the wealthy who happen to be those who make good choices will be rent seeking to limit their liability under the theory thereby attempting to reduce expenditures while reducing social liberty.  On the other hand the poor and those who make bad choices will wish to expand their individual liberty while maximizing the shift assets from the wealthy to them.  This spirals through cycles of encouraging heavy government regulation in social and financial life while also leading to increased rent seeking and irresponsible and inefficient behavior by all!

 

Is this why we have the Left wanting less economic liberty and more social liberty and the Right wanting more economic liberty and less social liberty?  Each is representing one side in the Social Justice theory?

Wouldn’t both side be better off if the right gave in on social issues and the left gave in on economic issues?

So we talk a lot about the policy costs of different healthcare reform.  Personally I have said before that my solution and the solution that makes sense to me is that government can most lower the cost of insurance by deregulating instead of increased regulation.  A nationwide marketplace with a single set of regulatory laws would go a long way in reducing the cost of both med-mal for doctors (something I’ll bring up later) and health insurance for individuals.  Both through increased competition but also decrease administration costs at insurance companies who spend fortunes on state by state compliance with very complex state specific law and code.  Secondly, the federal governments push towards employer purchased healthcare through various incentives and laws like ERISA and the tax code on deductions are a couple of major problems.  The employer based health care is a nice idea but it takes the choice of coverage away from individuals and hides the true cost making it difficult for people to make their own choices based on their own needs and often leads to costs for coverage individuals don’t need and often gaps where they would like more coverage leading to a lot of inefficiencies.  But the issue with rising costs isn’t just an insurance issue we need to do more than just defeat the big bad insurance companies because remember the doctor bills are what is climbing as well and with rising claims insurance has to go up to cover the costs so there is a medical cost component as well as an insurance market component.   

 

But what else is there in this issue?  Well a lot.  1 big concern is why we are here in the first place.  I think that government tends to create many of the very problems they debate fixing.  For example when we consider why we are in this mess to start with let’s define the mess.  The mess is rising cost of healthcare at a rate twice the increase in wages and three times inflation for the most part.  So let’s analyze why this is happening.

 

From a simplistic point of view this problem is a simple supply and demand issue mixed with a high fixed cost problem so let’s address both separately and then perhaps together.  The supply demand issue is multi-pronged but can be boiled down to a few simple mistakes.  

1.)   Medicare and Medicaid.  These are great programs but with a rising number of covered individuals not bearing their own costs for medical procedures the demand for medical care increases greatly and has been since the programs where started.  I’m not saying they are good or bad, right or wrong, only that they are a major contributor to the problem.  What is the solution to that problem, well, when government budgets for programs like this they should consider the externalities which in this case is increased demand and ultimately higher costs to non-Medicare patients competing for limited services and try to compensate in some way such as never inventing government programs of that nature because they are unconstitutional or more simply subsidize supply as part of the budget to increase supply to match the new demand and eliminate that negative effect to everyone else.   

2.)   Tax incentives.  People who want to be doctors have choices to make and our tax system discourages people from going into fields like medicine.  Doctors incomes are based on massive initial investments of ¼ - ½ Million dollars in debt and the sacrifice of 8-12 years depending on the level of specialty.  That’s years where they could be working earning an income and having a life or starting a family all forgone.  When they finally start earning that income it is a high income but our tax system taxes based on income without regard to the investment they initially put in.  They might be able to write off the interest on the debt but not the debt or the lost time or the lost enjoyment of their youth.  Most doctors start and end their careers in a very high if not the highest tax bracket which means it is naturally less profitable than a job that makes a steady income over a longer period of time such as those initial 10 years that the doctor was in college because when you spread income out you pay a lower percentage in taxes.  Also doctors have a short career because involuntary retirement is a real threat.  A surgeon for example could have a vision problem, a stroke, tremors in his hands, o even something as simple as a broken wrist or hand that could limit or destroy their ability to continue that career.  This leads to an extremely short career.  Finally under tax law careers that require 40+ hours a week such as doctors who typically put in over 60 are punished for doing so because once they break certain thresholds they pay higher taxes as a percent of their income because government doesn’t care if you work 30 hours a week or 90 they only look at the paycheck and think people who make more should pay more regardless of the time, effort or investment involved.  This discourages people from entering the field and increases prices for 2 reasons.  The first is because supply is lower than it should be and so doctors charge more because their time is limited and it’s a market rationing mechanism but secondly doctors have to charge more to make a living plus pay their loans and other expenses with after tax income so a lot of that tax gets passed on to patients in the form of higher medical bills. 

3.)   Tort Costs.  In many states it is almost impossible to sue doctors because they are protected a million different ways to prevent discovery of mistakes.  We need to make discover easier and make more openness in the process but we also need to change the law so that doctors don’t face 10 million dollar pain and suffering verdicts.  I’m in favor of a comprehensive tort reform to make the process more open but also limit the top side risk to doctors in a way that will bring down the risk of doing business without removing protection from patients.