Wednesday, January 30, 2008

Some Thoughts on Fiscal Stimulus and Healthcare Reform, part II

In my January 27th post, I explained the definition of a recession and I wrote about the last time the U.S. faced one (back in 2001). Seven years later, the nation is once again worried about a recession, prompting Congress to propose some quick spending in the form of rebate checks to tax payers. The House proposal would send $600 rebates to most taxpayers; more for those with kids in the house. The Senate has yet to debate the proposal, but the safe money says that some sort of rebate will be coming our way on the next few months.

I am not convinced that a rebate is what we need. I would argue that our problem right now is more complicated than a recession. Instead, it looks to me like a combination of slow economic growth and inflationary pressures, a problem that is known is stagflation. I've already explained slow economic growth, and the sources of that problem are varied. Inflation (when prices increase without a change in the amount or quality of the good being purchased) is a normal part of the American economy. As long as income rises to cover it, inflation isn't a problem per se. But the average American in the last year has seen prices for certain non-negotiable goods rise sharply, while their incomes have not risen to cover those costs. Those non-negotiables are fuel (in the form of gasoline and home heating costs) and food (the short explanation is that the increase in gasoline costs added to an increase in the price of corn translates to higher food costs.. At the same time that we are suddenly spending more for food and fuel, a greater portion of our monthly income is also being spent on increased healthcare costs. Healthcare spending, (which you will recall was the second most popular way to spend the 2001 Bush rebate) isn't always considered when economists talk about increases in the CPI (the consumer price index). But it should be.

In 2001, Americans spent approximately 7% of their income on healthcare costs (the employee's share of the premium for insurance provided by employers; prescription co-pays; doctor's visit co-pays, and the like). In 2007, we spent 17% of our take-home pay on healthcare. That's a much greater portion of our income, and gives you some feel for how quickly healthcare costs are spiraling upward. In the process, healthcare spending consumes more of our income, and leads to reduced spending on other consumer goods. In combination with the increases in fuel and food, I think that healthcare spending is a major factor in the economic slow-down that we are calling a recession right now.

A rebate check may temporarily cover some of those healthcare costs, but it won't fix the problem for good. 2008 is a presidential election year and, by the looks of it, a lot of people are interested in the election. Healthcare is frequently identified as an issue that American are worried about. 47 million of us don't have insurance at all and many of us who do have insurance are paying thousands of dollars a year for that insurance. Our employers are paying more.
Our healthcare dollars largely support a system of healthcare insurance that has a profit motive. Universal care, using a single payer model, in which we all participate would save us billions of dollars and provide healthcare to all of us.

Is my idea radical? Absolutely. But the problem has reached epic proportions and for the billions of dollars we are spending, we could provide healthcare to all of us, every single person in this nation, and probably for less money. That we do not do so is morally shameful. And, in my view, it's one of the biggest economic problems we face.


sister AE said...

Interesting proposal - and I followed the whole explanation! thanks.

J.Bro said...

But don't you understand how important this band-aid is?! Bread! And Circus!* That's what keeps the masses quiet and complacent!

*The circus being the new American Gladiators, of course.

lumbab said...

Well said. I totally agree. Like j.bro said, the rebate is like when car dealerships offer you a free ipod (valued at less than $200)for buying a $35,000 car that they know is overpriced - and people go for it!?!