Tuesday, May 24, 2011

The Economy: Karl Denninger, “One (More) Reason We're Totally Screwed”

“One (More) Reason We're Totally Screwed”
 by Karl Denninger

“The public failed Math Class, and it's our fault for dumbing it down in the schools:

WASHINGTON (AP) - “They're not buying it. Most Americans say they don't believe Medicare has to be cut to balance the federal budget, and ditto for Social Security, a new poll shows. Americans worry about the future of the retirement safety net, the poll found, and 3 out of 5 say the two programs are vital to their basic financial security as they age.”

What are they going to do when it's not there? And let's make no mistake: Medicare, in its current form with the current medical system, cannot be fixed. "Medicare is an incredibly complex area," said former Sen. Judd Gregg, R-N.H., who used to chair the Budget Committee. "It's a matrix that is almost incomprehensible. Unlike Social Security, which has four or five moving parts, Medicare has hundreds of thousands. There is no single approach to Medicare, whereas with Social Security everyone knows where the problem is." It's not complex at all.  Let's recap:

    * In the 1950s, 60s and 70s, nearly everyone went to the doctor or hospital and wrote a check.  If you had insurance for major incidents you submitted the bills to the insurance company and they reimbursed you.  The system was stable.

    * Since that time medical "insurance" was made part of employment benefits and you no longer "saw" the bill.  At the same time we passed laws mandating that anyone be treated even if they had no money and/or had chosen not to buy insurance (EMTALA) making insurance companies immune from anti-trust law, making it possible for them to legally discriminate on any basis they wanted to.  Finally, we imposed laws making it illegal to dispose of property in the medical realm, even sealed, known-authentic property, as you wish.  This was done so that foreign nations could "have access" to drugs and devices at reproduction cost while forcing Americans to bear the development expense of virtually every new device and drug, from MRIs to CAT scans to heart stents to new medicines.  By de-coupling cost from consumption this raw financial ******job was successfully "hidden" by the medical industry from consumers for 30 years.

    * We then passed Medicare Part "D" allowing Seniors to write checks on the Treasury for these very drugs that we just forced Americans to pay for the development of, effectively subsidizing the entire world's population in consumption of those drugs.

Now we wonder why we're going broke?

There's no solution to Medicare under the current system.  It is mathematically impossible to support the entire world's development of drugs and devices on our backs. Forcing people to buy insurance won't fix it either; the problem doesn't lie there.  But you wouldn't know this from the media, as they absolutely refuse to confront the medical industry - all of it from the doctors being "enticed" to prescribe new medicines that are 10x as expensive as the old, off-patent ones, the advertising aimed at consumers on television (did you ever see such a thing in the 1970s?  Nope) and the fact that Juanita the illegal Mexican Invader can (and does) come across the border 8 months pregnant with zero prenatal care and then drops an anchor baby here that not only entitles her to stay forever but at the same time costs the taxpayer $100,000 for the rather-complicated birth that she cannot pay for.

There is no other nation in the world that allows this crap.  Canada has socialized medicine but they impose strict price controls on drugs and devices.  The rest of the world with socialized medicine does so as well.  None of these nations allow their pharmaceutical companies to sell drugs and devices at 10 or 100x the price in other nations in their markets and get away with it.

Then there are the true "Free Market" systems, such as India.  You can fly there and have a procedure done.  Your hospital room will look and be handled like a 5-star Hotel.  Your procedure will cost 1/2 to 1/5th of what it costs here in the US.  You will have to pay cash, but you can afford to, and the doctor who performs the procedure is probably a graduate of a US Medical School.  If something goes wrong, however, you can't sue everyone to beyond the orbit of Mars, and more importantly, that very nice Hospital doesn't treat people who don't have any money.

Fact: More than half of all emergency room care is forcibly provided without compensation today.  And that's just where it starts. But it gets even worse when we start talking about the American Idiot condition: “This paper examines households’ financial fragility by looking at their capacity to come up with $2,000 in 30 days. Using data from the 2009 TNS Global Economic Crisis survey, we document widespread financial weakness in the United States: Approximately one quarter of Americans report that they would certainly not be able to come up with such funds, and an additional 19% would do so by relying at least in part on pawning or selling possessions or taking payday loans.”

WHAT? $2,000 was not an accident; it was selected as the approximate cost of an emergency transmission repair to your primary vehicle, or a blown water heater with mild damage to the building, or a car wreck that leaves you upside down (that is, with no ability to replace the car) and thus needing to buy "anything that runs" to get you to and from work.

Almost 25% of Americans could not raise these funds within 30 days and another 20% could do so only by destroying their personal financial condition.  Yet that's not even the question; emergencies don't wait for 30 days!  If your transmission blows up you need it replaced now, not in 30 days.  Ditto if you have no hot water or need a vehicle to get to work.

I personally went through a few months where I couldn't come up with that in some form or fashion when I struck out on my own.  I owned an old AMC Pacer (it was all I could afford to buy) and had to jury-rig a new muffler system on it at one point because I couldn't afford to take it to the muffler shop.  Every day I wondered if some ordinary disaster that we all suffer at some point in our lives would bankrupt me.  But I didn't stay that way for long; soon I had a couple large in the bank - just in case - and I did it by eating lots of Mac-n-Cheese and cutting out the beer for a while.

Our debt-laden society has led to utterly ridiculous and unsustainable expectations and beliefs.  It doesn't matter what people want to believe or want to have.  What matters is what mathematics will support. We cannot continue on the road we are on, yet the demagoguing of these issues by both left and right have led people to believe, on a serial basis for more than 30 years, that we can repeal the laws of mathematics.  This has led to the following:
 Click to enlarge image.

There is no solution that involves continuing this sort of budgetary debauchery. It must end, and end now.”

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