Agreeing With Krugman on China - Truly Scary

Paul Krugman is the economist/columnist that I love to hate. He is probably brilliant in some way that I cannot understand, because I almost never see it in his work at the New York Times. He is a Nobel Prize winner, but I often wondered if his award was not politically motivated, in much the same way that Obama's clearly was. I was surprised to find his analysis of China's economic situation quite penetrating. I had argued against Glenn Beck and others that China was not the formidable foe they thought. My unlikely ally in this regard is Krugman. Some key points.

Still, even the official data are troubling — and recent news is sufficiently dramatic to ring alarm bells.

The most striking thing about the Chinese economy over the past decade was the way household consumption, although rising, lagged behind overall growth.

. . .China increasingly relied on trade surpluses to keep manufacturing afloat. But the bigger story from China’s point of view is investment spending, which has soared to almost half of G.D.P.

. . .it [the motivation for this investment] depended on an ever-inflating real estate bubble. Real estate investment has roughly doubled as a share of G.D.P. since 2000, accounting directly for more than half of the overall rise in investment.

Do we actually know that [Chinese] real estate was a bubble? It exhibited all the signs: not just rising prices, but also the kind of speculative fever all too familiar from our own experiences just a few years back — think coastal Florida.

. . . it’s impossible not to be worried: China’s story just sounds too much like the crack-ups we’ve already seen elsewhere.

Krugman also takes to task those who think that China's "strong, smart leaders" who don't have to bother with democratic niceties will somehow handle the situation. He points out that endemic bribery at the local level limits the central government's ability to govern. I would add that even dictatorships are subject to political pressures, which ultimately cannot be ignored.

We have a good news, bad news situation. Despite all of the troubles of the Unites States, there is no other nation close to being able to challenge our leadership, not the Europeans, not China and not Russia. However, if China also starts to suffer serious economic hardship, then a global depression seems possible.

Managed Competition with Subsidies is not a Free Market in Health Care

Paul Krugman summarizes the leftist argument for socialized medicine in today's New York Times. He also cites a longer article by Ezra Klein purporting to prove that competition doesn't lower the cost of health care. Krugman's summary.

Patients by and large don’t have the information to evaluate medical treatments; in any case, they mainly buy insurance rather than medical care directly; and insurers profit not by providing the most cost-effective care, but by trying to insure people who won’t need care.

And it’s not as if market competition hasn’t been given a try; in this country it has been tried over and over, by politicians who won’t take no for an answer.

Ezra Klein cites any number of examples such as Medicare Advantage and Medicare Part D to show that the competition within those programs has not lowered costs.

These are misleading arguments that need rebuttal.

• In a free society, why is it a goal to spend less on health care? If we have rising levels of discretionary income, why wouldn't we choose to spend more on improving our quality of life?
  
• We conflate total costs with unit costs. An aging population is going to consume more health care, there is nothing to be done about the demographic curve. However, competition can reduce unit costs.
• Even if people have to make decisions about medical providers under emergency conditions, they do not make decisions about insurance plans that way. True competition between plans is stifled by Obamacare and so many other regulations.
• Even under emergency conditions, people make informed decisions about health care treatment. They can often decide which emergency room to visit and have information about who is best when they do so. During my last few emergency room visits, I arrived by private vehicle, in full possession of my faculties, as did over 90% of the other patients I saw there.
• If we had people paying significant out of pocket expenses, and they had better choices in health care providers, then an Angie's List for doctor's would spring up. Krugman thinks the average person as both ignorant and stupid, unable to learn for themselves. When the chips are on the line, I find people to be just the opposite, researching treatments and providers extensively.
• Competition has been slowly squeezed out of the market place ever since the introduction of Medicare and the insurance industry following all of Medicare's practices. It is a lie to say that any free market solution has been tried in the last three decades. Klein makes the classic leftist argument that when a quasi-competitive managed system that also involves government subsidies and regulation doesn't deliver cost savings, this is proof of the failure of free markets. It is not.

Until we decouple insurance from work and free up the insurance industry to provide plans with high deductibles and relatively high catastrophic caps, we are not going to get unit cost containment. Until the baby boomers leave the stage, we are going to see increases in health care costs, period.

A Reason to Like the Deficit Commission

. . . Or the National Commission on Fiscal Responsibility and Reform as it is formally known, Paul Krugman hates it. From today's New York Times article:

Count me among those who always believed that President Obama made a big mistake when he created the National Commission on Fiscal Responsibility and Reform — a supposedly bipartisan panel charged with coming up with solutions to the nation’s long-run fiscal problems. It seemed obvious, as soon as the commission’s membership was announced, that “bipartisanship” would mean what it so often does in Washington: a compromise between the center-right and the hard-right.

Even if I don't agree with everything Bowles and Simpson have proposed, they are certainly making the right enemies. Adding Paul Krugman to a list that includes Nancy Pelosi is certainly a major achievement.