Header Image (book)

aowheader.3.2.gif

Wednesday, April 24, 2019

The Socialist Plan for America

By Sam Huntington

Most socialist countries have pursued extreme policies. Most, but not all. The argument made by socialists and dyed-in-the-wool communists, such as Bernie Sanders, is that socialist policy in the United States would involve fewer increases in tax rates, but one notices that Sanders never discusses the likely economic or social consequences of socialism. Why should he? He’s trying to sell socialism to the American people. A full discussion of socialism’s likely ramifications would only defeat his argument.

To begin with, socialist policy produces lower real growth. We know this because we can observe the effects of socialist policy on citizens who live in countries that embrace it. Experts who have not sold their souls to a proven ruinous ideology tell us that in the long run, American socialism would likely reduce real GDP by 40% (See Economic Freedom of the World, 1975-1995, Fraser Institute and Economic Freedom of the World Index). The Fraser Index provides a range between the least-free (1) and the most free (10). These indicators are aggregated to five main categories, which are given equal weight in the overall. The categories are indicators of economic freedom, not political freedom or civil liberties. The categories are:

• Size of government in spending, taxing, and size of government-controlled enterprises
• Legal system and property rights
• Sound money (measuring policies relating to inflation
• Free international trade
• Limited regulation, the freedom to exchange and trade domestically

Currently, the United States is at 8.0 (out of 10). Moderate socialist nations average between 6.0 and 7.5, which is an increase from 5.5 in 1975 when most of these countries aggressively pursued socialism (many no longer do). As a bellwether, Venezuela is rated at 2.9. What this tells us is that increases in socialist policies correlate to increases in public financing, public production, and government restriction through regulation, all of which substantially reduces each citizen’s disposable income. The less disposable income a citizen has, the less economic freedom he or she enjoys. More to the point, the EFW index confirms that increased economic freedom results in improved national economic performance: faster growth, higher living standards, and a happier society. As an example, a one-unit increase in the EFW index from 1980 to 2000 equated to a 2.6-point increase in private investment and a 1.2% increase in economic growth during the same period (See Institutions and the Impact of Investment on Growth, 2006). Other studies found smaller effects, but still economically significant.

Bernie Sanders’ voted against gutting the corporate income tax, which had a statutory rate of about 39% for federal and state taxes combined. This rate is well above where the United States is now. He also proposes a 68% rate on dividends and capital gains, which is more than double, also 39-points above where the US is at present. He also wants to add 24-points to the top estate tax rate. Of course, he has to make these proposals if 4-year universities are “free” and Medicare is granted to all. Interestingly, Sanders never quite gets around to the truth: access to medical services is one thing and obtaining quality (life-saving) medical treatment is quite another.

What is the value of medical care that costs a patient nothing? What is the value of a college degree if everyone gets one for showing up to class and has no stake in the endeavor? Obtaining large amounts of tax revenue (to pay for free stuff) ultimately involves resorting to high tax rates on the poor and middle class because these groups generate much of the nation’s income. Some economists call this “widening the tax base.” One way in which socialist countries do this is by imposing a value added tax (VAT), which is essentially a national sales tax. It applies to everyone, whether rich or poor. VAT may demand an added 24-25% to the cost of consumer purchases (added to all other impositions, such as excise taxes and retail sales taxes). In the US, taxes vary by state, but none are as high as proposed by the Sanders’ economic team.

What most people understand with clarity is how much money they’re making, as compared to how much they are bringing home as disposable income. In the United States today, per capita income is 20% higher than in moderate-level socialist countries. People living in some US states have a higher per capita income than in others, mostly as a result of oil production income. Do Americans really want 20% less income under a Bernie Sanders presidency? Among those who do not understand the implications of the Sanders’ proposal, the answer is yes. The blah blah blah of economics is muted and over-shadowed by the words “free stuff.”

If an American purchases a Ford Ranger (small truck), he or she will pay around $24,300.00. In a moderately socialist country, someone buying the same vehicle will pay $40,600.00 (due to VAT). But wait, the actual cost of that truck in a moderately socialist country increases when you add in taxes on fuel. The fact that paying for these additional taxes requires more work (an average of six additional hours per week), workers incur even more taxes. Select any moderately socialist country in the world and then select any worker in any field of endeavor. Compare that person to his or her counterpart living in the United States. Economically, the American worker is 44% better off than his socialist cousin. Why this is true is explained by analyzing consumption. Americans spend their disposable income at higher rates than the socialist cousin. Spending (demand) creates employment. In moderately socialist countries, consumption is 30-35% lower than in the United States.

If we examine “free college” and rely on the Organization for Economic Cooperation and Development (OECD) studies for our numbers, here’s what we’ll find. Despite the fact that most American students pay college tuition, they are more likely to pursue a college education than their socialist cousins. Why? Because Americans realize that they will recoup their tuition through good-paying jobs. Beyond this, from what we know about the quality of “free stuff,” no reasonable person will want to diminish the quality of her or her education.

Sanders, in a recent townhall meeting, assured his constituents that under his plan for free Medicare For All (M4A), consumers can keep their doctor and can choose any hospital they want. As if we haven’t heard this sort of thing before. Bernie Sanders was at least honest and upfront about this: taxpayers will pay more —much more. How much more will depend on their tax bracket, but $20,000.00 more (annually) is not beyond the pale for free education and health care for all.

Economists expect America’s health care sector to grow a fourth of the US economy over the next few decades. “Free” single-payer healthcare continues to be the foundation of socialist policy proposals in the United States. Currently, 141-members of Congress support M4A proposals, which call for a public monopoly to cut costs (See Section 1804, House Resolution 676). Why? Because they are more efficient, or so the argument goes. How is this possible? Because a government monopoly will avoid waste on administrative and advertising costs and will use its bargaining power to obtain better deals from health care providers. If passed into law, the plan would make it unlawful for a private business to sell health insurance, or for a private employer to offer health insurance to its employees. In contrast to Sanders’ scheme, M4A would phase in mandatory enrollment over four years.

M4A is a tax, which the government may legally impose. The issue of quality or productivity of this plan would be determined through centrally planned rules and regulations, but at this point, I wonder if anyone can remember the promises associated with the ACA —literally none of those promises were true or came true for middle-income Americans. Should any American not like the tax charged or the quality of care provided by the government monopoly, there would be nothing they could do about it. Moreover, price competition in healthcare itself would be completely eliminated because all the prices paid to providers would be centrally established by the single-payer. Along with preventing private health plans, preventing private markets from supplementing public programs, and by prohibiting healthcare providers from earning profits, cost-sharing would also be eliminated.

One must wonder, after comparing the United Kingdom’s National Health Service and Canada’s Medicare System (both of these a single-payer system), do Americans really want critical healthcare decisions placed into the hands of median-income health professionals or government bureaucrats? The fact is that in both the UK and Canada, medical professionals receive their paychecks from the government. They are, for the most part, mid-income wage earners who have no incentive to increase their professional knowledge through continuing education because no matter how much they know, it will not improve their income position.

It is not simply a matter of doctors; nursing staffs and lab technicians are also adversely affected by single-payer systems. Waiting lists for critical surgeries in the UK and Canada range from six weeks from the time of diagnosis to six months, but that assumes that patients receive a correct diagnosis (from their barely competent/minimally interested physicians) in the first place. In the UK, the issue is not one involving the availability of hospital beds; it is the availability of doctors and nurses. It is so bad, in fact, that the majority of doctors and nurses in the UK come from other (mostly Middle Eastern) countries—people who are willing to work for less money than their British counterpart.

Even if it were true that UK/Canadian healthcare providers are among the best in the world, high-quality healthcare becomes ineffective when there are delays in diagnosis and/or treatment. Quality degradation takes many forms, from shorter appointment times to longer waiting times for treatment. In European countries with single-payer systems, the average patient spends no more than five minutes with his or her doctor during consultations. In the USA, only 21% of seniors waited more than four weeks to see a specialist; in the UK, this jumped to 51%. This is the Democrat plan for America.

According to Centers for Medicare and Medicaid Services (CMS) in 2016, about $7,500 was spend per Medicaid beneficiary. Should these beneficiaries had been given the $7,500 to spend as they think best, it is more than likely that none of them would have spent it on health insurance. The problem always comes back to the inefficiencies of spending other people’s money on other people. In this case, CMS is spending tax dollars on beneficiaries. By expanding the size of the eligible population for program benefits, those who are currently eligible are unlikely to benefit. The evidence for a trade-off between universal and senior healthcare is supported by both the European single-payer experience that limits care for the elderly and in the US by ACA reforms that cut Medicare spending by nearly $1 Trillion to help fund expansions for younger age groups.

The existing system has:
• Private insurance as well as insurance for lower-income households
• Essentially zero deductibles
• Medicare for the elderly
• ACA for the non-elderly who are ineligible for Medicaid.
• Uncompensated emergency care/guaranteed hospital admission

Thus, M4A leave little room to improve health care among US citizens —and while it is true that the current system has some non-Medicaid eligible citizens who are uninsured, they are healthy people who have chosen not to purchase an ACA plan. They have exercised their right to choose.

Additional consequences of socialized medicine will be a much smaller economy because single-payer health care provides, as I said, disincentives to work and learn. If financed solely through higher taxes, M4A will reduce long-term GDP by 9%, and household incomes, after taxes and health expenditures by 20%. Worse (for those suffering from chronic or acute medical problems), M4A will reduce longevity while at the same time have a minimal effect on increasing the fraction of population with health insurance.

A thinking American will wonder, given what we know about Medicare now, how government will finance M4A. By 2022, CMS projects that the private sector will spend $1.47 trillion on private health insurance, and $460-billion in out of pocket health expenses in an economy of $24.4 trillion Thus, M4A will increase healthcare utilization at the federal government’s expense ... adding $2.37 trillion to government spending. Where will this money come from? Without additional taxes, the federal government would have to cut all other programs in the federal budget by a whopping 53%, which implies significant reductions in Social Security and Medicare benefits, and serious reductions in the Department of Defense. One projection includes a 79% cut to Social Security benefits ($1 trillion annually) and a 74% reduction in Medicare services to those who are currently entitled.

Proponents of M4A argue that the population would be no worse off financing M4A solely with taxes because these taxes would merely replace the cost of premiums paid to private sector insurer. It is an inane argument because it ignores the fact that taxation distorts economic activity, making the cost of tax revenues larger than the revenues themselves. Economists call this the dead-weight loss of taxes in excess or revenues. Here’s an example: if the federal government imposed a $1-million tax on air travel, government would collect no revenues because no one would fly. Moreover, such a tax would impose a more onerous burden on the population by forcing them to replace air travel with some other form of transportation. The cost of collecting taxes to fund M4A (in one year) is 1.5 times the additional revenue needed to fund the program (See Toward Obtaining a Consistent Estimate of the Elasticity of Taxable Income using Difference-in-Differences, Journal of Public Economics 117: 90-103, 2014).

Of course, there would be a middle ground: funding M4A by using spending cuts and tax increases. The Congressional Budget Office estimated that the ACA was evenly funded by both tax increases and cuts to Medicare and Medicaid, but for a program as large as that proposed by Democrats, it is unclear whether it is feasible that sufficient tax revenue can be collected in the presence of tax avoidance behavior, particularly by higher income populations that provide the largest share of total federal tax revenues. If the maximum amount of revenue collected (the height of the Laffer curve) remains below that required in new funding, then spending cuts will be required regardless of lawmaker preferences.

All in all, poor Americans have a higher living standard than their socialist cousins. One has to wonder why Bernie Sanders wants to change this. One wonders how the American people are so easily convinced to embrace such a ruinous system as M4A. One must conclude that the only reason anyone would support single-payer health care is that (a) they do not understand its ramifications, and/or (b) politicians—like Bernie Sanders—intend to deceive them through confusing and often repeated political blather.

37 comments:

  1. I'm sorry, but that's a lot to digest at 7am getting ready to go to work to pay for everybody else's staying home.
    Socialism just hasn't been done right.
    Unless a lot of people dying is the desired result.
    There's reason to believe it is.

    ReplyDelete
  2. B-but socialism is going to use deficit spending to pay for Medicare for all instead of a nuclear arsenal we never use. /sarcasm

    Yeah, the fiscal responsibility argument against socialism ain't gonna work.

    ReplyDelete
    Replies
    1. I must sadly agree with TC. "Conservatives" and Republicans have been running the "fiscal conservative" con for decades now, and nobody's buying that crap anymore.

      Republicans have beshat themselves, destroyed their credibility, and drained all power from the "fiscally responsible" argument.

      Face it, folks. In politics, principles are just a laff line.

      Delete
    2. Agree with TC. The fiscal responsibility argument may not work BEFORE the sheeple elect a moron like Sanders, but it will sure as hell work afterwards, when it's too late. No matter what tax bracket the sheeple fall into, they are not going to like that tax bill, and they won't much appreciate having to wait for a medical appointment until it's too late to save their lives, either.

      Delete
    3. GOP today stands for Gaggle Of Phonies.

      Delete
  3. Why is the "logo" for socialism a closed fist? Because you'll either do as they say, or they'll beat the cr*p out of you.

    Great system.

    ReplyDelete
  4. Why should my kids, who worked their way through college, pay for debt forgiveness of others?

    ReplyDelete
    Replies
    1. Well yes, but then you might as well ask, "Why should a childless couple, or an old retired guy like me who never had any children pay exorbitant property taxes so other people's kids can be indoctrinated to spportt the doctrines of Cultural Marxistmin our generally rotten public schools?"

      Delete
  5. Why should the pursuit of worthless degrees be funded by taxpayers?

    US government need to get completely out of higher education funding.

    If those overpriced indoctrination centers want to attract students, let them line up the loans and the funding, and let those same higher education institutions be responsible for those loans.

    ReplyDelete
    Replies
    1. Let's go even deeper than that, and ask, "Why should colleges and un.ivesities be PERMITTED to offer "worthless degrees" like Black Studies, Women's Studies, Queer Studies, etc.?"

      But then we have to argue the merits and deficiencies of Unlimited Freedom of Chce for individual, and Who Gets to Decide What is and is Not "Worthless, etc."

      In MY view we'd do better to let everything return to the PRIVATE sector, let people follow their natural incinatiins, and then let the Devil take the hindmost.

      The idea that an almighty governent should be there to act as Big Momma or Big Daddy to "protect" us from OURSELVES is the ROOT CAUSE of what ails us in my never humble opinion.

      Delete
    2. Agreed. Colleges should be free to offer worthless classes and junk degrees, and people should be free to consume such cotton candy, with their own money.

      Delete
  6. IF the US government is going to fund post-secondary education, it should only be for degrees or trades most needed in the US job market.

    ReplyDelete
    Replies
    1. If the government wants to fund any education, it has to be through repayable loans. I'd like to see these loan-institutions refuse to fund any worthless degree and there are dozens of these. There should not be a single BA or BS degree awarded for "gender" or "racial" studies. Those kinds of things can be offered in graduate school to satisfy the desires of truly gifted nitwits.

      Delete
    2. The new governor in Michigan wants to pull that crap.
      I refuse to buy it.
      Camel and nose.
      No interest loans, maybe. Why not? Student Loan programs are federal now.

      Delete
    3. Somebody is paying for that No Interest Loan. Put it on the colleges and universities, not the back of the taxpayers.

      Delete
  7. Socialism? How 'bout this...

    Government needs to entirely shut down the H1B Visa scam, and coerce the tech giant robber barons into building colleges on their tony campuses to train US citizens to do the jobs they have been importing foreign slave labor to do.

    ReplyDelete
    Replies
    1. SOCIALISM SUCKS!

      That's IT. There's nothing else to say,

      End of subject.

      Over and out.

      Delete
    2. Agree, but to an angry womans studies major working for minimum wage at Starbucks, it sounds pretty good.

      Delete
    3. TELLING TIDBIT:

      My GP's receptionsit, a nice portly middle-aged won recently QUIT her job at the doctor's office, and KOWABONGA! decided to CLEAN HOUSES, instead!

      REASON?

      The PAY is MUCH higher!

      How d'ya like THEM apples?

      };^)>

      Could his b a sin=gn that –– mybe –– we are returning to sanity at last?

      Plumbers and electricians make more money than mid-level executives in white collar jobs,

      If I had school age kid today, I'd send him to a good TRADE SCHOOL.

      "COLLEGE" these days has become ah elaborate, overpriced FARCE.

      Delete
    4. Reminds me of the joke about the psychiatrist that became a plumber because he got tired of dealing with other people's crap.

      Delete
    5. Kindas like the bank president who got bored with his work and decided to learn how to wire both new and oldr houses, because he thought in that way his daily grind would be more electrifying.

      (:-o

      Delete
  8. Healthcare reform step 1: Rationalize the market

    Nobody knows what anything costs, so pricing is skewed, the consumer doesn't pay anyway, so all the normal market signals are busted, resulting in what we have now.

    Talk of insurance and "bringing down costs" (which when economically-ignorant pols like Obama or Ocasio-Cortez say it, they actually mean prices to the consumer) is futile in an irrational market.

    ReplyDelete
    Replies
    1. A guy I know here in Detroit had an MRI done.
      It would cost him @250 out of pocket cash or have insurance pay $3000 and he pays $250 copay which counts against his deductible. So he used the insurance.

      Delete
  9. Silverfiddle is right about each of his points. Politicians know the voters and they know that the best way to appeal to them is by offering only half of the truth and filling out the rest of their argument with emotional tripe. The founding fathers observed that the realization of democratic ideals only works in an educated society. We don't have one of those, so ...

    Great idea about training US citizens, too. There is a "drain" going on in the USA; it's a rational thought drain, brought to our kids courtesy of a pathetic educational system, and since its been going on for several generations now, I don't think it can be fixed. This is how the American people are "so easily convinced to embrace ruinous programs."

    ReplyDelete
  10. I would vote for a free college education available to all... but only "if" to qualify you had to score 3 deviations above the mean on the SAT or ACT.

    But then again, why should society reward such a person given such 'innate' natural advantages?

    ReplyDelete
  11. There is one, and only one reason why our higher education system is over-priced. Universal government loan availability and education subsidies.

    ReplyDelete
  12. If loudmouth libs really wanted to help people they would be doing expose's and holding hearings on why Big Ed is gouging consumers and taxpayers.

    ReplyDelete
  13. We were doing all right when J.Edgar Hoover, Rihard M. Nixon and Joseph McCarthy were still running the show,

    Admittedly, McCarthy was clumsy, –– he may have lacked finesse–– but he was RIGHT

    We shot ourselves in BOTH feet when we got rid of Joe McCarthy, Richard Nixon, then vilified and lampooned Hoover posthumously

    ReplyDelete
    Replies
    1. Freethinke, I watched Trumbo earlier this week. Fantastic film (transcends the politics IMO) about the Hollywood blacklist. Recommended!
      When I read your comments about cultural marxism and the indoctrination of today's youth, I sometimes reflect on your childhood era and the degree of propaganda it was soaked in. Emerging from world war and with the soviet union a genuine threat, I'm not quick to judge the West for engaging in a spot of extreme messaging, but I do think it's a mistake to overlook how much more prevalent it was then compared to now.

      Delete
    2. Jez, we are still being propagandized, it's just coming from different directions now.

      Delete
    3. My opinion, Jez, is not based on anything I was TOLD, but only on the vast differences I've personally EXPERIENCED between the way we lived THEN and the way we are living NOW.

      I'm gettng very close to eighty years of age. That doesn't make me any smarter than anyone else, but it DOES mean I've been a witness to history from 1946 on.

      Of COUFSE we were subjected to "conditioning" by our public schools and churches, but the mentality spawned at that time was a great deal more salubrous –– pleasant, optimistic, hopeful, encouraging, and energizing –– than the dreary teachings of Cultural Marxism which have wrought havoc across our once-pleasant land.

      Virtually EVERYTHING has been going downhill on a bobsled since the mid-SICK-sties.

      You don't have to believe me, of course, but I refuse to doubt what I have exerienced for myself with my own eyes and ears.

      And Siiver's point about our being propaganized today [more than EVER, i wud insist!] is well taken.

      If I'm going to be "propagandized," I' much rather it be by decent God-fearing Christians, and sensible, dutiful teachers devoted to imparting genuine SKILLS and KNOWLEDGE and a lifelong love of LEARNING, instead of soul -deadening Political Correctness heavily overlaid with socialist cant and rhetoric.

      Hope all is well with you and yours in Mother England?

      PS: Did you know I made a recording of Beethoven Sonata #26, opus 81a "Les Adieux" to celebrate my 77th birthday a year ago? You were kind enough think well of the Beethoven sonata i recorded many years ago with a violinist who became highly regarded in the musi world. So, you might be interested to hear what i was able to produce nearly sixty years later? Just Google "FreeThinke-Hyrarmess Beethoven, opus 81 a," and it should come right up. Cheers! - FT

      Delete
  14. I don't think these reforms see the big picture. Why worry at all? We can always pass our debts on to aliens on other planets someday.

    ReplyDelete
  15. SF is correct that an irrational market cannot be expected to operate like an ideal one, and this is one of the errors that has led to a lot of bad policy. But I would say, don't assume that even an ideal market would act rationally in all domains. To pick up SH's examples of education and health, I would not like those domains to be purely market-driven.

    ReplyDelete
  16. Sam wrote:

    Do Americans really want 20% less income under a Bernie Sanders presidency?

    That lower income would destroy the middle class, both the middle and lower levels. And what about young people starting out? Their future looks to be quite grim under Bernie.

    What amazes and dismays me: how many young people whom I personally know (mostly homeschoolers) sing the praises of socialism -- at least until they see the withholding on their first paycheck.

    ReplyDelete

We welcome civil dialogue at Always on Watch. Comments that include any of the following are subject to deletion:
1. Any use of profanity or abusive language
2. Off topic comments and spam
3. Use of personal invective