How To Buy An Election

New report from the Bureau of Labor Statistics on food stamp usage for July. By just some coincidence, the report would normally have come out just before the election, but was delayed to just after the election.   Here's a report from ZeroHedge.

Check out this chart of food stamp usage during the Obama administration and monthly changes.

Food stamp usage was at about 31 million in January2009 when Barack Obama assumed office.  Now its 47.1 million. The explosion has slowed some in the past year, but how about that increase of over 400,000 in July, the most recent month reported?  Can't wait to see what September and October look like. 

Do you think that the 16 million or so additional food stamp recipients during Obama's time were more or less likely to vote for him after joining the hand-out state?  Also, if the economy is improving, shouldn't the number be going down,in fact dramatically down?

What Do We Say To The 60,000 Dead?

The  Washington Post reports on the new dilemma facing Mexico: How much effort are they going to put into continuing to support the American war on drugs now that marijuana for recreational use has been legalized by referendum in Colorado and Washington?

Mexico spends billions of dollars each year confronting violent trafficking organizations that threaten the security of the country but whose main market is the United States, the largest consumer of drugs in the world.

Has it all been for  naught? The drug war has taken an unbelievable toll on Mexico over the past several years:

About 60,000 Mexicans have been killed in drug-related violence, and tens of thousands have been arrested and incarcerated. The drug violence and the state response to narcotics trafficking and organized crime have consumed the administration of outgoing President Felipe Calderon.

Of course, what we don't know is whether the Federal government in its wisdom will honor the verdict of the voters in Colorado and Washington.  We do know that the Feds have continued prosecutions even of state-licensed medical marijuana purveyors in California since medical marijuana was legalized by referendum in that state.  Here's the court decision in United States v. Stacy (S.D. Cal Mar. 2, 2010) rejecting the effort of a California-licensed medical marijuana dealer to get his Federal indictment dismissed.  Oh, by the way, if you are a medical marijuana dealer and the Feds prosecute you, you are not even allowed to mention to the jury that your conduct is legal under the law of California as passed in a referendum of the people.

Sooner or later these drug agents and prosecutors will be packed off to new jobs.  How many people have to die in the drug wars first?

As Long As It's An Entitlement It Will Be A Ponzi Scheme

In a post yesterday I gave a couple of reasons why Medicare is a mathematical Ponzi scheme.  To get a deeper understanding of how this comes about, you need to follow the constant efforts of advocates to game more money out of the system, and the futility of government attempts to push back.  Indeed, one wonders if the bureaucrats who run the program have any interest in looking out for the taxpayers, when their short term interest is in seeing the program expand, and seeing themselves move up in a bigger and bigger organization.

The legal profession now has a specialty called "Elder Law," largely consisting of people who make a living out of figuring out how to get more money out of Medicare and Medicaid.  The American Bar Association has an entire Elder Law section.

Here is a completely mind-numbing article from today's New York Law Journal on one of the hot Elder Law topics of the day, the Medicare "improvement standard."  As you may have been unaware before now, Medicare pays for home health care aids for eligible people, but under HHS's Medicare Benefits Policy Manual there is an "improvement standard" to determine what is actual medical care -- the concept being, if care doesn't have the prospect of making you better, it isn't medical care that should be covered by Medicare. 

Lawyers challenged this criterion in a nationwide class action brought in Vermont.  They found a highly sympathetic plaintiff, Glenda Jimmo, 71 years old, with severe diabetes, legally blind, and with a leg partially amputated.  Medicare denied her claim for home health care aides, saying that the claim wasn't really for medical care because it had no prospect of improving her condition.

Result:  after losing one motion, the government gave up.  The case has been settled on a nationwide basis, to be approved by one judge in Vermont, under which Medicare will revise the Benefits Policy Manual to make it clear that "skilled nursing services" are covered whether or not improvement in condition is expected or hoped for.

There is no mention in the article of any estimates of the cost to the government of this settlement.  It is easily in the tens of billions of dollars, more likely hundreds of billions over a long enough time period.  Our only gatekeeper is a judge in Vermont, undoubtedly carefully selected by the plaintiffs, who in any event probably won't even be given any information about the financial consequences of the settlement to the government.

Now you are undoubtedly thinking, why does Ms. Jimmo care about getting this payment from Medicare?  If she's really as badly off as described, wouldn't Medicaid pay for the aides?  And now we get to what this case is really about, although not discussed anywhere in the article:  If a service is covered by Medicare, it is covered even if you are a billionaire. If it's Medicaid, you must use up your assets first, or at least most of them.  Ms. Jimmo therefore has some assets that she doesn't want to use up paying for her aides.  The most common such asset would be a house, which the elderly person would much prefer see passed on to her kids at her death rather than used to save the government from paying for the aides.  Also at issue could be  money or other investments, in some cases lots of them.

These issues never get discussed in these articles or the cases, which proceed as if the immense cost is not even a consideration in the outcome. Who could be so cold-hearted as to deprive the blind and amputated Glenda Jimmo of her healthcare aide? But if the government must pay for all  healthcare costs for  even millionaires and billionaires while they pass the wealth on to the children, what is the chance that Medicare costs will not spiral away until they swamp the entire economy?  Is the government's credit card really infinite?

Ponzi Schemes

Are social security, Medicare, and Medicaid Ponzi schemes?  (And how about Obamacare?)

It depends on how you define the term "Ponzi scheme."  Defenders of the entitlement programs say they are not Ponzi schemes because Ponzi schemes are  illegal whereas the entitlements are not; and because in Ponzi schemes the investors are deceived about the true nature of the investment, whereas with the entitlements it is all laid out right there in the statute books.

I'll concede both of those points, but those points are not really important.  The important aspect of the Ponzi scheme is its mathematics.  The key characteristic is that the liabilities of the scheme increase at a geometric rate that is faster than any possible ability to attract new money into the system.  In that sense, Medicare and Medicaid are clearly Ponzi schemes.  Social security has Ponzi scheme aspects, although not beyond cure by fixes that are at least theoretically possible.  For Obamacare it's too early to tell, but the odds that it will prove quickly to be a Ponzi scheme are exceedingly high.

Medicare spending in 1990 was $107 billion according to this article.  By 2011 it reached about $563 billion per a chart here.  That's a compound annual growth rate of over 8%.  The economy is growing at around 2%.  In a good year it grows at around 4%.  In a spectacular year it grows at around 7%, and we may never see one of those again.  Medicare grows at 8%, compounded, year after year after year. 

Here's a not-too-hard math exercise:  if Medicare is currently about 4% of the economy, and grows at 8% per year, and the economy grows at 3% per year, how many years until Medicare is larger than the entire economy?  The answer is shorter than you might think:  around 70 years.  At that point everyone works all the time, but we have no food, no housing, no clothes, no vacations, and not even any medical care except for old people.  Everyone works just to provide the medical care for the old people.

That scenario won't happen because Medicare as currently structured will fall apart, just like the  Madoff scheme fell apart, well before we get there.  But how soon:  10 years, 20,or 30?  Nobody knows.  But it will happen because there is no way around the math.  And by "Medicare falls apart" I mean the Federal government falls apart, unless they have somehow separated themselves from paying for Medicare in the meantime.

You ask, why can't we just slow it down, say to the rate of inflation or slower?  Good luck with that.  The reason is that the incentives are perverse and every one of the millions of people working in the healthcare system has the incentive to try to get as much money out of Medicare as possible.  With Medicare, every provider tries to raise his price every year by inflation or more, but that is only one of several factors at work.  A second factor is that people live longer, so there are more and more beneficiaries.  And then there are the new treatments.  If you come up with a new treatment, you don't charge just last year's price plus 3% because there was no last year's price.  You can set a new price at whatever you think you can get away with.  The government has no ability to push back because you will be able to show that somebody died when they refused to pay.  That's how we end up with new cancer treatments costing $100,000 for a course of treatment.

But you ask, with every good sold in the private economy, the producer has the same incentive to get as much money as possible out of the consumer.  So why don't sales of every consumer good turn into a Ponzi scheme?  The answer is that private individuals can't afford the price.  If Apple tries to price the new iPad at $100,000 the way a pharmaceutical company prices a new drug, it will sell about six of them and lose money.  That's why you see new electronic products coming out at high prices ($10,000 for a flat screen TV) that then drop quickly over time.  The rich buy in the first round and the increasingly less rich in subsequent rounds at lower prices.  In Medicare, every course of treatment is sold to the richest buyer of all, the one with the infinite credit card who can't say no when someone is dying.

I can confidently predict that until Medicare is reformed in a way that it must meet a budget and people cannot just get whatever treatment they want, then it is a Ponzi scheme (in the mathematical sense) and it will collapse.

Can't Wait For The Second Term

Now that Barack Obama doesn't have to spend 24/7 running for president, is he going to get back to the job and, say, actually try to tackle the problem of the debt?

If you think he'll do that, I say you don't know the man.  Here's my prediction: He's basically going on vacation.  Lots of Hawaii, lots of golf, maybe a top-notch European resort playground for Michelle and the kids.  Lots of pomp and circumstance with himself as the center of attention.  Lots of state dinners.  Occasionally he'll take a couple of hours and give a speech blaming whatever problems there are on the Republicans.  What are we going to do about it?  He's got the job for four years and he can't be fired except for a process way too cumbersome to even try.

Meanwhile, which country has more government debt per capita, the U.S. or Greece?  It's the U.S. by quite a wide margin - $53,378 per capita versus $39,384 for Greece.  The news from Greece is all riots and arson.  The EU is demanding a two-year increase in the retirement age before granting the next bailout.  The horror!  Let's burn the place down!  Plenty of good photos at http://www.powerlineblog.com/archives/2012/11/back-to-work-the-debt.php

When your livelihood comes from making money in a private job, and you want to make a better livelihood, you can work longer or harder or better or smarter and make more money.  Result:  more harder and better work, more goods and services produced, better off populace.  When your livelihood comes from hand-outs from the government, and you want to make a better livelihood, you do it by putting political pressure on the government.  Result: riots.  No reason to work at all, because there are no rewards to be had there. 

Can They Teach Politicians Any Basic Economics?

Every day everything is rationed by the price system. It seems to be a requirement of being a politician that you don't understand how that works.  When there is any kind of disaster, they go completely crazy.

Here we have our Attorney General, the ever-grandstanding Eric Schneiderman, investigating "Sandy price gouging."    "Our office has zero tolerance for price gouging," he is quoted as saying.  It seems that one store raised the price of a bag of potatoes from $3 to $7.  A gas station raised the price of a gallon by 83 cents.  Would the world be better off if the stores sold out of potatoes or gas on the first day and then nobody could get more at any price?

New York's General Business Law Section 396-r prohibits charging an "unconscionably excessive price" during an "abnormal disruption of the market." Is $4.89/gal an "unconscionably excessive price"?  In California they pay it every day.  As for New York, you'll have to ask Schneiderman to find out.

Meanwhile Mayor Bloomberg calls for gas rationing.  You need rationing because without a price mechanism to allocate the gas, you'll immediately run out.  How about hiring a few thousand bureaucrats to hand out ration cards?

The genius of the price allocation mechanism is that there is always supply, without having to go through a bureaucracy, if you can pay the price.