By John Norris, Managing Director, and the Head
of Wealth Management at Oakworth Capital Bank in Birmingham
Our
elected politicians are currently sparring over tax rates and spending cuts to
avoid something popularly called “the fiscal cliff,” as we head into 2013. If
the two sides can’t reach a conclusion, all the so-called Bush tax cuts expire,
as does the Administration’s payroll tax break. Further, the Congress will have
to start cutting spending, or at least cut the growth of deficit spending
moving forward.
When
combined, the US economy is presumably facing a sudden loss in liquidity, or
government largesse if you will. While experts can’t reach a unanimous
conclusion as to the outcome, they are in agreement it won’t be positive for
the economy. Frankly, that probably isn’t very likely.
The
reason is pretty simple: either party’s proposal is preferable to letting
everything expire, no matter what the media leads you to believe. Further,
Washington’s concept of spending cuts is much different than yours or mine.
When we cut spending, we reduce the absolute number of dollars going out the
door. When the Federal government does it, it simply reduces the projected
amount of deficit spending over the next 10 years.
As
a result, the biggest problem with the fiscal cliff is psychological, in so
many ways. Yes, your tax bill is likely going to go up no matter what happens,
but the end result is probably not going to be as bad as you currently think.
Once you accept this, the only thing left is for Washington to quit the fooling
around, and set the rules moving forward. After all, knowing what the rules are
is arguably more important than the rules themselves.
What
is more concerning is the public’s basic illiteracy regarding what has become
known as Obamacare.
I
admit I haven’t taken the time to read the entire 2000 page healthcare bill.
So, I don’t know all the nuances and the like. Does anyone, really?
Obviously,
the problem with predicting the future is things can change. I have seen the
numbers Washington is throwing around in regards to associated costs, and think
you can throw them out the window. They are estimates about something that has
never happened from people who have never had to make them. Were the original
10-year estimates for Social Security, Medicaid, and Medicare accurate? You
know, who cares? What good is a 5-10 year guesstimate when you are talking
about a perpetual entitlement/program?
Now,
throw political ideology out the window, and look at the issue in terms of
basic economics. What ultimately determines the price of a good or service in a
competitive market? Perhaps it has something to do with the level of consumer
demand relative to the supply, you think? If demand is greater than the
available supply, prices go up. If it is less, they go down. This makes sense.
For
all the hand-wringing in Washington, I still can’t figure out where the
increase in supply is going to come from in order to drive down the price of
healthcare. Oh, I understand forcing people to buy insurance policies and the
like, and there might even be a public option. Who knows? But that isn’t the
same thing as increasing the supply of healthcare, is it? Wouldn’t that
actually be increasing the number of people demanding it? Hmm.
Think
of it this way. From what I have read, the new Birmingham Barons stadium,
Regions Field, is estimated to have a seating capacity of around 8,500. Now, what
if the Yankees come to town to play an exhibition against the Barons, and I
stand outside the stadium selling $5 general admission tickets to everyone who
walks up? If I sell 20,000, how many people will be able to get inside to watch
the game? What? 8,500? Maybe 10,000 if you use a shoehorn? What about the other
10,000?
Hey,
you might not get to see the Yankees play, but you would have an affordable
ticket to watch them, wouldn’t you? As such, you should be happy and thank me.
The
only real way to have a meaningful decrease in healthcare costs is to increase
the number of trained medical professionals and decrease our demand for them.
It is kind of like losing weight. You won’t keep the weight off for good unless
you fundamentally change your eating habits and get some exercise. Everyone
thing else is just pushing string, wasting time, and spending someone else’s
money.
So
which is it? Forcing people to buy insurance will increase demand, but what
about supply? Well, cutting Medicare payments 21%, tacking an additional $2
billion tax on medical device companies, and forcing states to pick up more of
Medicaid at first blush don’t look like good attempts to increase the supply of
healthcare. In fact, you could even argue these things might actually decrease
the supply. Hey, you seniors on Medicare, the doctor won’t be taking on anymore
Medicare patients this year! If they do, they make less money, and making less
money isn’t what most people go into medicine to do.
In
the end, from what I have seen thus far, healthcare reform, at this stage,
proves to be a costly endeavor, for someone, which won’t be able to deliver as
promised. Still, there are people who honestly believe Obamacare is going to
provide “free healthcare” and the same measure of care to everyone. That is
very frustrating, because it simply isn’t going to happen.
Where
the rubber meets the road, between the fiscal cliff and Obamacare, the American
public gets bombarded with a lot of talk and not a lot of useful information.
If Washington’s end aim is to frustrate and confuse the medical industry and the
rest of us, it seems to be doing a good job. If it is to rapidly expand the
economy and increase the supply of healthcare in the country, I am afraid its
current actions and game plan are, well, ironic.
John
Norris is a Managing Director, and the Head of Wealth Management at Oakworth
Capital Bank in Birmingham. He can be reached at john.norris@oakworthcapital.com.
The
opinions expressed within this report are those of John Norris as of the initial
publication of this blog. They are subject to change without notice, and do not
necessarily reflect the views of Oakworth Capital Bank, its directors,
shareholders, and employees.