Friday, March 29, 2013
Welcome to the new version of the American Dream.
It may look the same as the old one – personal prosperity and owning your own home – but fewer people are likely to live it, and if they do, it will happen later in life.
The transition Americans are undergoing is not merely recovery from a deep recession with life soon returning to the way it was before 2008. It is a complete redesign of the American economy.
Two news stories last week prove the point.
“The situation for today's adults in their 30s and younger is particularly gloomy,” reports the nonpartisan Urban Institute. “When it comes to building wealth -- adding to savings, owning a home, paring down debt, growing a retirement nest egg -- those under age 40 have stagnated,” it says.
Instead of earning more than previous generations, younger people get less pay than what their parents were paid when they were the same age.
We also read that two states – Maine and West Virginia – now see deaths exceeding births each year. By one measure, Maine is the oldest state in the country with West Virginia coming in third.
They are the bellwethers of the United States as a whole. In the first nine years of this century, the median age in the country increased by one and a-half years.
Older people have not saved enough for their retirement years, so they cannot be the big-spending consumers they used to be. In other words, older people are a larger share of the population, and they have less to spend.
American businesses are adjusting to these new realities. To survive and remain competitive with foreign suppliers in what is now a global marketplace, they must reduce their costs.
And the place where they cut is paying their employees. Labor costs as a share of total national production are now at record lows.
High paying jobs have been lost, forcing many to accept new jobs with less income. Even worse, some have been pushed out of the work force, making the unemployment rate look better than it really is.
Many people have become more realistic about having enough income to afford a new home. While that means they must wait longer for their dream home, the chances of losing it in foreclosure are less.
There’s some good news.
Jobs that went abroad are coming home. As wages rise in China and elsewhere in the developing world while they stagnate in the United States, imports are beginning to lose some of their attractiveness.
Taking into account transportation, heavily influenced by the price of fuels, and the narrowing labor cost difference, “Made in the U.S.A.” is staging a comeback.
While people struggle to find decent jobs, American corporations are doing well. Unemployment may still be too high, but the stock market, which reflects what investors see as the economic future, has broken through to new highs.
U.S. manufacturing, long in decline, seems to be gaining again, thanks to the jobs that are coming home.
In fact, as American-made goods are priced close to world market prices, U.S. exports could improve, which would help promote job growth.
Business is profitable partly because labor costs are down. Workers – from airline pilots to assembly line labor – have accepted pay reductions in order to keep their employers competitive. Perhaps as big as government bailouts are the sacrifices made by employees.
Even with this improved outlook for business, the total picture is far from rosy.
Government programs that depend on income-based taxes will have less money to meet the growing financial needs of Social Security and Medicare.
Rep. Paul Ryan’s proposed Republican budget would keep these programs solvent by sharply reducing benefits. While these programs might then pay their own way, older people would suffer.
One alternative is higher taxes to help support these essential programs. In an economy with fewer workers relative to the total population and lower pay scales, those workers might have to pay more to the government.
Another option is for people to save more for retirement. Like higher taxes, more saving would reduce the amount people could spend.
The new American economy would depend less on consumer spending, now its main driver, as more money went either to taxes or savings.
A rapid increase in the working age population could help slow or reverse this trend. That’s why immigration reform may turn out to be essential.
Perhaps this new version of the American Dream is not inevitable. But nobody has yet offered a way to save the old version.
Monday, March 18, 2013
The problem with health care is not Medicare, Medicaid, or Obamacare.
It’s what health care costs.
The United States leads the world in one area of health care – it costs more here than in any developed country. Higher cost does not mean better care. The United States lags many other countries in length of life and infant mortality.
Most industrialized countries have some version of a single payer system in which the government is the insurer and can influence the prices it pays for various procedures and medications.
In this country, the government, insurers, and individuals all pay for health care. And, when the government is not paying, health care providers are free to set prices that everybody must pay.
Why are hospital costs so high? A recent report by Steven Brill in Time magazine provided answers.
He revealed that both non-profit and for-profit hospitals make money, with non-profits doing better.
Where does the money go? It pays for more sophisticated equipment, whether it is needed or not, advertising to attract more patients, and astronomical salaries for the top officials.
And for lobbying Congress to keep the system just as it is. The health care industry spends more on lobbying Washington than the defense, aerospace, and oil and natural gas industries combined.
The industry is rapidly becoming a monopoly. In most areas, there is no longer any choice among hospitals. There is one in each area, making the concept of a “market” purely theoretical.
As the number of hospitals is reduced, so is the number of independent doctors’ offices. In the near future, it is expected that 75 percent of physicians will be on hospital payrolls.
To boost hospital income, these doctors are often required to see more patients each day, resulting in less attention to any individual. And insurance reimbursement is more profitable for hospitals, Brill says, with doctors in-house.
The hospitals’ big profits are obvious, when the costs charged to the uninsured based on hospitals’ “chargemaster” price lists are compared with Medicare payments.
The chargemaster sets prices well above cost and even levies outlandish charges for simple bandages, which ought to be included in overhead costs.
In one case Brill cites, a hospital bill came to $121,414, but the hospital accepted $16,949 from Medicare.
Hospitals and doctors are not required to participate in Medicare. If they are not paid enough, they can quit the system.
But they don’t. In fact, in Florida, where many patients are on Medicare, hospitals advertise for retirees to use their services.
Even Medicare, the largest single customer for health care in the country, is prevented from bargaining to get the lowest prices for drugs. If one medication is better than another and cheaper, Medicare must still pay the average price of all approved drugs of the same type, which means it must overpay.
The Veterans Administration, which also buys a lot of prescription medicines, does not have such a rule, and its costs are estimated to be 40 percent less than Medicare’s.
Obamacare will not fix the problem. It can only create competition among insurers, though one of the players in each state will be a non-profit company.
Opponents of Obamacare see this so-called “exchange” as being able to underprice the private companies so that it ends up as the single payer.
That would have to happen at some point in the indefinite future if the non-profit insurer could ever be powerful enough to force the industry to bring its costs under control.
Meanwhile, the health care industry is increasingly acts like an unregulated monopoly where, for the time being at least, the insurers have little ability to place a brake on its charges.
Experience shows there are essentially only two ways to deal with the pricing power of “natural” monopolies, those that cannot simply be broken up, because of the type of services they provide.
We can see how such controls work, because both approaches having been applied to electric utilities, which are natural monopolies.
One is regulation, where “just and reasonable” prices are set by independent regulatory bodies, acting like judges. Those areas where competition is possible – electric generators or equipment manufacturers in the health care sector – are left largely unregulated.
The other solution is government as the single payer. For electricity, government takes the form of the municipal utility. It makes no profit and bargains for what it will pay for power.
We seem to be moving toward the point in health care where regulation or the single payer or both will become essential and inevitable.