Healthcare Crisis

The US healthcare system is set up to make money, not to take care of people.  That is one reason why hospitals are having so much trouble dealing with the COVID-19 pandemic.

To start with, the US limits the number of doctors it trains to keep their salaries high.  It brings in foreign trained, foreign doctors to do the dirty work in emergency rooms and family clinics, so that American doctors can do the highly paid specialist work.  If American medical schools trained more doctors, Americans would have better healthcare.  The focus of doctors on money is illustrated by how many have been implicated in the use – illegal and legal – of painkillers like Oxycontin, how many doctors accept gifts or paid speaking (vacation) opportunities if they prescribe a certain, expensive drug.

Secondly, American hospitals are set up to maximize profits, not to improve the healthcare they provide.  The buildings, staffing, administration are all organized for profit, not for care.  Just in time inventories and small staffs do not work well for epidemics.

The health insurance industry adds further distortion to the healthcare business.  It means that consumers don’t care about the cost because insurance pays most of the costs.  All the negotiations are between the insurers and the providers, without any consumer input.

This business model has left the healthcare industry unprepared for a pandemic where the treatment is not cost effective, i.e., lots of expensive treatment for poor people.  But if the poor people are not treated, they will spread the infection to everybody else.  Most of the patients are old and sick, requiring extensive care, while the virus hardly affects young, healthy people.

The clearest indication that the American healthcare system is in a mess is the fact that it is one of the main campaign issues in every election.  Obamacare would not be such an issue if the overall healthcare system were not so messed up.  Americans are afraid to criticize their doctors because they fear that if they do, their doctors will let them die screaming in pain.  However, they do criticize the general healthcare system of which the doctors they fear are a critical part.  Healthcare is always the number one issue in elections because people think it is bad.

Those highly paid, American trained specialists are good at treating the illnesses in which they specialize, orthopedics, cardiology, cancer, etc., but they are less good at keeping their patients heathy, because there’s no money in healthy patients who don’t visit the doctor.  The American healthcare system maximizes treatment, not health.  Healthy patients are bad for doctors’ bank accounts.

Individual doctors should be aware that they are part of a corrupt system that s not taking care of the American people.  They may be rich financially, but they are ethically poor.

The Fed and the Bond Market

I worry that the Fed has permanently damaged the bond market.  The bond market has been a relatively stable institution for hundreds of years.  The idea was that people with money would loan it to other, usually poorer people, for things like starting businesses.  In return they would get enough interest to make the risk of the loan worthwhile. If wealthy people did not like the risk outlook, they would demand higher interest, which meant that fewer and fewer borrowers would be willing or able to borrow at the higher rate.

The Federal Reserve has eliminated the risk in the bond market and thus reduced the interest rate to about zero.  By buying up a substantial part of the entire bond market, it has reduced the risk associated with bonds is almost zero, because the Fed will buy almost anything.  The lenders may not be happy with the interest rate, but they like the security of no risk.  The borrowers like what is essentially free money.  This looks like an ideal situation, but it works only because the US government finances at least part of it.  In essence the Fed pays the risk premium, eventually causing the national debt to skyrocket.  The Fed can also print paper money. At some point printing money should be inflationary.  It may be that currently it is creating asset inflation, driving up the stock market and house prices, while not yet driving up consumer prices.  It may be that consumer inflation is kept down because so many of our consumer products come from China and other Asian countries.  If inflation takes off in Asia, we may quickly feel it here.

One thing that helps the US is that most international trade is done in dollars.  As long as the dollar is the world’s reserve currency, we are less affected by economic conditions in other countries.  If the US continues to be a spendthrift, running continual huge budget deficits, and printing huge amounts of dollars, then the dollar’s status as the world’s reserve currency may be threatened.  If so, then we become less insulated from vagaries of the world financial markets.

Basically, interest rates have been zero since the 2008 great recession.  This was when “quantitative easing,” bond buying by the Fed, started, which drove down interest by reducing bond risk.  So far, it seems to be working, but it’s not clear what it means for the long term.

There may be a price to pay in the future.  Asset inflation of stocks and real estate may worsen income inequality, which is already a problem.  It will solidify and worsen class differences and/or create social unrest.  It might undermine the value of the dollar, which would be good for exporters, but bad for every other sector of the economy, particularly consumers.  Prices of clothes, TVs, computers, etc. will skyrocket.

So far, though, the Fed’s machinations seem to be working.

In Friday’s New York Times, Paul Krugman wrote a whole column about the national debt and the future of interest rates without mentioning the Federal Reserve.  His explanation for why interest rates are so low is:

That’s a longish story, probably mainly involving demography and technology. Basically, the private sector doesn’t seem to see many opportunities for productive investment, and savers who have no place else to go are willing to buy government debt even though it doesn’t pay much interest. The important point for current discussion is that government borrowing costs are now very low and likely to stay low for a long time.

So Krugman says interest rates are low because there is nothing worth investing in in the US; so, rich people just buy low-interest bonds.  He doesn’t mention that the Fed is buying bonds like there is no tomorrow.  Then he also says the US government should not be afraid to spend money to deal with the pandemic.  Isn’t that investing, isn’t that the very thing he said was not worth doing because there is nothing to invest in?  His is an unpersuasive argument for doubling the national debt.

Saturday’s Barron’s “Up & Down Wall Street” column blames the Fed for zero interest rates.  It quotes Mark Grand of B. Riley as saying, “I assert … that you are not getting paid for credit risk….”  Barron’s adds, “This bond-market veteran put the blame on the Fed and other central banks for creating a ‘borrower’s paradise’ and a ‘fixed-income investor’s hell’ by holding interest rates down, in part to help finance the massive fiscal deficits.”

I think Barron’s has a better understanding of the situation than Paul Krugman.

Strategic Arms Control in a Trilateral World

The website warontherocks.com looks at how the US might use strategic arms control negotiations, such as the new Start treaty wth Russia, to affect the overall relationship between the US, Russia and China.  It thinks the negotiations with Russia might tend to weaken Russia-China ties and give the US more leverage with both of the other parties.  It says:

The United States and the Soviet Union both used arms control to, among other objectives, drive a wedge in adversarial coalitions. The Limited Test Ban Treaty exploited Sino-Soviet differences in terms of the nuclear balance, and SALT I emphasized different Chinese and American policies toward the Soviet Union. In both cases, the wedge drivers achieved some limited success. Washington aggravated the Sino-Soviet split beyond repair. Moscow delayed and dampened encirclement by the United States and China for six years, from Nixon’s visit to China in 1972 to the normalization of Sino-American relations in 1978. The success of these wedge strategies turned upon different strategic circumstances. The test ban treaty capitalized on an already disintegrating alliance, while SALT I countervailed anti-Soviet convergence by conciliating the United States on key issues.