Elizabeth Warren’s Healthcare Dilemma.

Warren has some great economists at her disposal, much as does Bernie. She just isn’t listening to them at the moment and is falling into the “pay for” trap. I knew she would eventually because that kind of structure is important to her. She’s a true blue policy wonk. In her world of spreadsheets and projections where everything must have a source and a destination, it is only logical to understand how we “pay for” such large spending initiatives as free healthcare at the point of purchase. Her entire background and training require it from the perspective of business and personal budgeting.

However, none of her training or experience is relatable to spending by the federal government, simply because it isn’t available, or is available from only very limited sources. She has the correct information at hand, but either doesn’t or chooses not to grasp it. All economics in the last century has been taught from the perspective of a “user” of a currency, primarily business and banking, not that of the “issuer” of the currency used in the economy. We, our businesses, and even our state and local governments must “get” money before spending, either from taxation or borrowing. The federal government pays for itself and its programs by passing legislation that requires new money to be created in the private sector and has no operational use for revenue beyond controlling inflation.

As a result, Warren has presented a plan that satisfies the need to provide healthcare to everyone while not raising taxes on the vast majority of the population. To do so, she must accept one of the major problems with our present system, that healthcare “coverage” is employer-based and look to that source for the majority of funding for her plan. Instead of employers having that money to give their employees raises and benefits, which they will need to do to retain their workforce once they no longer have health insurance to anchor it, she needlessly “collects” it in taxation to offer some workaround to the media’s demands to articulate her plan in the framework they are familiar with, but not the correct one.

The best way to “pay for” single-payer healthcare is not to try. It is already cheaper than our present insurance-based system by 20-25%, so we are already paying for it, and more. As long as the resources necessary (doctors, hospitals, nurses, labs and equipment) to provide healthcare to an additional 30 million people exist, or can be restructured from present potential, there is no reason to draw $30+Trillion of demand from an already shaky economy over the next 10 years. Yes, this economy is extremely shaky and likely more so than just prior to the ’08 crash.

Giving those paying for insurance presently more money to spend and their employers more money to invest in capturing that added demand is exactly what we need. Many will use their savings to retire dangerous levels of private debt and the balance will boost the economy to better handle the million-plus workers that will be made unemployed when insurance no longer exists in the private sector. We will also, in good conscience, owe them more than the pittance now available via state unemployment benefits, and many will need retraining, or simply to be allowed early retirement without penalty if their age would make it cost-efficient. We can, if we wish, require that employers contribute to funds at the state and local level to offer education and job skills to the employees displaced by the change, but that can’t be done via taxation at the federal level or it negates any benefit potential.

Could this approach cause some inflation? Quite possibly, but we can deal with that with several mechanisms, including taxation, should it occur. The important distinction to make is that we aren’t attempting to “pay for” a benefit the rest of the world takes for granted as part of their social structure that deems healthcare as a “right”, not a commodity to generate profits. The Fed has been missing its inflation targets on the low side for years now because the middle class is tapped out and desperate and is barely covering expenses, much less increase its spending. Deficits are required to maintain a healthy economy in conditions that allow extreme wealth accumulation and heavy dependence on foreign trade. However, the distribution of those deficits should be at the lowest possible level to enable commerce and the greatest number of turns of the money (velocity) before they are taxed out of existence.

Once one becomes aware that taxes and borrowing cannot be revenue for spending, only reducing the debt and being balanced to zero by that debt, it becomes obvious that the total debt (bonds and excess reserves) in our economy is an accurate accounting of all money created by Congress but not being demanded back in federal taxation. It is past productivity not yet spent/invested in the economy or used to pay a federal tax obligation. It is our collective fiscal savings. A balanced budget, the holy grail of politicians of both parties, leaves nothing in the economy to compensate the private sector for resources and labor the government uses, store value from commerce, retire private debt, or be net saved.

Both Warren and Bernie know this, except that this is the first real attempt either have made to present a plan to pay for their healthcare plans. The voters may approve, being mostly econ illiterate, but it isn’t a reasonable path forward and could do serious damage to the economy that would require massive injections of federal money via safety nets. Note that Bernie always targets those who he believes should be taxed more regardless of spending when asked the payfor question. We can only hope that Warren is simply pandering to the media and political pressure, and not actually serious with her plan.

Meandering to a different drummer.

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