April 12, 2012
An Historical Comment on Health Care Benefits

As discussion of the Obama health care law heats up again, now that the primary seems decided for the Republicans, I thought I’d throw out a piece of information that not a lot of people appear to know, but that seems relevant to the issue:

Have you ever wondered why you get health care benefits from your employer, rather than buying them on your own (like you do your house and your car) or getting them as part of a national package of benefits (like pretty much every industrial/postindustrial democracy other than the United States)? It turns out the answer is an accident of history.

Prior to WWII, basically no one had a health care benefit plan in America. If you got sick, you paid your bill out of your savings and earnings. In rural areas, doctors took barter—the infamous chicken, for example. After all, there wasn’t all that much doctors and hospitals could do for you in the days before penicillin, and you weren’t going to linger for weeks and months in a hospital before you died. Paying for care was “manageable,” to use that loaded term.

That changed during WWII. As men got drafted in their millions, vast labor shortages broke out across the nation—at exactly the time labor needs increased to produce the weapons of war. In part, the labor shortage was met by the infusion of women into the paid workforce, but regardless of women’s contributions to the labor pool, labor shortages were endemic throughout the war.

Elementary economic theory notes that anything scarce tends to go up in price; the same is true for labor. When labor is scarce, employers seeking workers raise their salary offerings to attract labor from other jobs.

However, in WWII wages were frozen. Employers couldn’t compete for labor with salaries. So they competed on benefits—including, notably, health care benefits. They couldn’t pay you more directly, so they gave you more indirectly.

The principle of employer-provided health care benefits stuck after WWII. Unions negotiated generous packages; white collar workers wanted at least as much; and the modern system of employer-provided health care benefits became the established norm—just a few decades after a time when no one would have had any health care benefits at all.

Note that this was never the case in the rest of the industrial/post-industrial democracies.They decided to make national health care benefits part of their national mission after WWII because just as they had borne the suffering of the war together, they believed it was right to provide care in a collective, state-centric way. Hence they built national, non-profit health care systems, not employer-derived, for-profit systems.

In the US, of course, we now live in a world where there is so much health care, and that health care is so expensive, that we are frightened of living as my grandparents basically did, and my great-grandparents certainly did: paying for our own medical care on an as-needed, fee-for-service basis. Instead, as an accident of history, we are all just a job loss or poor job opportunity away from being without good insurance for health care. Which ought to scare pretty much, well, everyone in the United States.

November 29, 2010
A Christmas Miracle?

Everyone is looking for a Christmas miracle.

Of course, the miracle in question is not religious in nature—or, at least not explicitly religious in nature. Rather, what people around the world are hoping for massive is sales of goods and services this Christmas sufficient to restart the global economy.

The reasons for this hope are completely understandable. If sales are sufficiently high, increased demand will require new hirings to make the goods and services that are in demand. This hiring will tend to stimulate more demand, since people with jobs consume more readily than do the unemployed. As a consequence, more and more people must be hired to meet this increased demand. Hiring begets hiring; jobs beget jobs; and the global economy can get a jumpstart towards alleviating the suffering of millions of un- and under-employed people. Job growth offers a hope that things will get better.

Growth in jobs also offers two positive effects for governments, at least those with social safety nets. First, it removes lots of unemployed people from the rolls of welfare, unemployment insurance recipients, and health programs for the poor. Indeed, one of the major reasons global government budgets are so far out of whack right now is that lots of people demand government services in tough times. When things get better, demands for services goes down. This helps reduce a government’s budget deficit.

Second, employed people pay taxes. More employed people pay more taxes. Accordingly, governments collect more taxes, potentially closing the gap in the government’s budget.

Growth thus seems a magic bullet solution to what ails us. It both reduces demands for government services and increases government capacity to pay for the services it provides. It’s a seeming win-win.

However, what is usually missed in this conversation is the question of how growth is paid for.

The ideal type of growth happens when wages to increase relative to inflation. Such real income growth means that people can buy increasing amounts of goods and services, at least in combination with new consumers—children coming of age, immigrants (illegal and legal both). In such circumstances the economy grows AND people get richer.

In the American case, however, from the middle class down real wages have stagnated or have declined  for most of the last 30 years. Growth has been entirely concentrated in the top strata of the income spectrum. It has been extraordinary at the very top.

Supply side economists insist that this inequitable growth is fine since the wealthy are expected to spend and invest and thus stimulate growth. The empirical record has shown this is not true, however—or at least it has shown that such spending is not adequate to promote real wage growth. The rich control vastly more US wealth than they did 30 years ago (the top 10% control something like 90% of wealth in the US, while the top 1% control something like 50% of US wealth), but their spending and investments have not promoted growth in jobs and real incomes in the US.

A second way to grow is massive borrowing.
This is the way growth was concocted in the last 30 years. Both citizens and governments consumed more than they could afford, and borrowed on credit cards and even home equities in an endless effort to consume more than incomes allowed. Sometimes, as in thoughtful home loans or, in the case of governments, selling bonds to build roads and schools and electric grids, some debt is productive: it returns vastly more value than the financed costs. But in the last 30 years we financed electronic consumer goods, pizzas, everything, to a staggering degree. And no pizza has much of a multiplier effect. Moreover, the electronic goods were produced internationally, creating sales and tech jobs in the US, and making the products cheaper here, but also financing the (mostly) Asian/Chinese boom.

In any case, given Americans’ contemporary over-indebtedness, as well as the collapse of the housing market, there is little capacity for a debt-driven recovery. At least not a consumer-driven one.

The plain fact is that there is no miracle cure for what ails us. There is no magic, painless bullet that will resolve the equation in a way that means we can continue to consume at the same—or increasing—rates that we once consumed, all while governments provide goods and services at a high level. It’s going to take spending cuts and tax increases and service reductions—in short, changes to our expectations of life and the standard of living.

As Wesley puts it in The Princess Bride: “Life IS pain…. Anyone who says differently is selling something.”