Posts filed under ‘Special Rants’

Occupy Wall Street – Show Up for School

The Occupy Wall Street movement is a vitally important cause with many supporters as well as cling-ons. Please leave its crucial message on the US and world economies intact. The legacy of education reform is essential to our children and our economy, but we must maintain a separate identity. Please…Don’t call it Occupy the Schools.

The world is trapped in the trenches economically. We must address our woes through stimulation of the economy, investments in local production, and reversal of the toxic alchemy in financial instruments. There is nothing more vital to the survival of our political economy than substantive change in the form of long-term redistribution of wealth away from imprudent investors, the alienated ultra-rich, and our overseas creditors. Implicit in that political economy is a market economy that is responsive to money as well as the political strength of the democracy when lack of money silences too many would-be participants.

The Occupy Wall Street demonstration is functional, meaningful, and deserving of fiscal and monetary policy response. We must cautiously avoid added baggage on the coattails of the movement that might reduce the impact of its primary message.

November 22, 2011 at 8:07 AM Leave a comment

Health Economics Rant

Healthcare costs for government employees and retirees have been bones of contention in contract negotiations across the nation. However, a perfect storm of rising costs, recession woes, and aging of the population could be offset by introducing the laws of economics to the supply side of healthcare.  

The supply of healthcare products and services has been subject to relatively unrestrained inflation and economic rents for decades despite policy initiatives to contain costs. Aside from some success with government as the payer, healthcare providers have been in a position to mandate rising payments for services. They have taken advantage of their position as controllers of supply and demand for products and services, and they have wielded this power to eliminate the law of diminishing returns with increased volume. Cost containment efforts have produced shadow-pricing in products and procedures; technological innovations have become the cornerstones for institutional expansion and growth for the bureaucracy. So why isn’t there more aggressive opposition?

Through tough economic times, healthcare stocks have offered the rare growth opportunity. Healthcare providers and suppliers have increased their contributions to employment. Facilities expansions have boosted new construction. Despite the fact that healthcare has crowded out other investments in our economy, especially the factors of real production, we have come to rely on these benefits, however short-sighted, as bright spots in a dismal economy. Costly therapies have spun out of control, and we cannot afford to get well. Still, no one wants to kill the goose that lays the golden eggs.

For a visionary, there is a way out of this mess. And it comes in the form of an opportunity that many prefer to see as the challenge that is going to sink us: the aging of the population. We merely have to begin to analyze the supply side of health care with an eye to diminishing returns that lower units cost of product/service provision. The resulting drop in unit price would be offset by growth in unit demand with population redistribution toward middle age and old age. If done right, employment would be stable and healthcare stocks would not have to crash.

We are not helpless in the face of rising healthcare costs, nor are we beholden to it for what remains of our wealth. Ideally, we could contain total healthcare expenditures to a stable percent of GDP while addressing healthcare needs in the private markets. The industry might grow a bit faster than the economy initially, but there would be an incentive for orderly transfer of investment out of healthcare and into emerging growth markets.

Twenty years ago I watched in dismay as we made key bad decisions that vilified the managed care industry and gave carte blanch to provider groups. The latter consolidated their power in local markets and eliminated the crucial role of health insurers as agents of purchasing power for the consumers. Key provider groups began to walk away from price negotiations, and insurers caved lest they lose all of their customers. Today, not even the largest state employee insurance pools have the power to bid down prices in healthcare. That suggests that healthcare providers function as monopolies in their local markets – a role that baffles them all the way to the bank.

Eventually, with the aging of the population and unrestrained healthcare inflation, there will be enough pain in the industry for politics to overrule on the supply side. In the meantime, we can use enlightened management of costs within these operations to reduce the redistribution of wealth from ourselves to healthcare providers and suppliers. Alternately, we can go broke watching the gradual erosion of healthcare provision and outcomes in that coming Perfect Storm.

October 17, 2011 at 11:11 AM Leave a comment

The Wisconsin Debacle

Collective Bargaining? YES. Unlimited Benefits? Not likely.

The recent uproar in Wisconsin has demonstrated the kind of hyperbole that plagues the education debate. Public employees were stripped of their collective bargaining rights in a bizarre sequence of events led by the governor and ultra conservative legislators. The action, which targeted a seemingly conciliatory teachers’ union, attempted to set a precedent for legislative union busting. Fortunately, at least one judge has chosen to challenge the constitutionality of that action. However, the residue of the Wisconsin fiasco is a debate that failed to differentiate between the right to collective bargaining and the need for fiscal prudence in funding wages and benefits for employees.

Rising healthcare costs and under-funding of pension benefits for state and municipal employees will strain budgets in the best of times. Many factors have conspired to give us Social Insecurity where old-age benefits once seemed secure. Private companies have responded to similar constraints by asking their employees to share the burden of funding their health and retirement benefits, effectively choosing between wages and benefits in their total compensation. The collective bargaining process creates a structure that offers the benefit of a more democratic decision for employees along with the burden of proof and persuasion for the employer. This is not necessarily a problem.

 The governor and a significant percentage of the legislators in Wisconsin attempted a power play to avoid the bargaining process, citing the unions for an untenable position. This was not a valid argument. Further, the governor’s intent was clearly to abuse his new power in the immediate future – the kind of clear and present danger that has driven unionization of workforces historically.

While the fate of public employees in Wisconsin hangs in the balance, the rest of us may wish to consider more creative solutions to the finance issue. Regardless of the outcome in the courts on collective bargaining, the fiscal challenges will not go away. Among the issues to research are:

  • Salary structures that reward performance as well as tenure
  • Flexible compensation plans that allow choices between wages and benefits
  • Alternatives to union-managed defined benefit pension plans

 Finally, public employers are often the largest purchasers of healthcare benefits in any state. They need to continue to exert pressure as prudent buyers against price increases from healthcare providers. If the largest employers cannot influence prices, government institutions may wish to join their employees in a fight against a common foe, healthcare monopolies.

March 23, 2011 at 9:29 AM Leave a comment

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