The NHS drops Life-Saving Drug as it would lead to more Rationing and longer Wait Times

Posted by PITHOCRATES - April 22nd, 2014

Week in Review

In 1954 almost 35% of all workers belonged to a union.  Since then that number has fallen to about 11.3%.  As the high cost of union contracts chased manufacturing out of the country.  Today the majority of workers belonging to a union work in the public sector.  Where they enter contract negotiations with the taxpayers to secure better pay and benefits than most taxpayers have.  Of course during these negotiations the taxpayers have no say.  As politicians and unions hammer out these contracts.  Unlike trade unions.  Where the people paying the workers actually have a say.

This is another reason why national health care is the Holy Grail for the left.  They want to unionize all those health care workers.  Pay them more.  And deduct union dues from their pay to fund their political activities.  Leaving less money for patient health care.  But they’re okay with that.  But they’re not okay with a pharmaceutical company charging a lot of money for life-saving drugs.  Which, also, leaves less money for patient health care (see Breast cancer drug turned down for NHS use due to high cost by Sarah Boseley posted 4/22/2014 on the guardian).

A Herceptin-style drug that can offer some women with advanced breast cancer nearly six months of extra life has been turned down for use in the NHS because of its high cost.

In draft guidance now open to consultation, the National Institute for Health and Care Excellence (Nice) blames the manufacturers, Roche, who are asking for more than £90,000 per patient, which is far more than any comparable treatment…

“We apply as much flexibility as we can in approving new treatments, but the reality is that given its price and what it offers to patients, it will displace more health benefit which the NHS could achieve in other ways, than it will offer to patients with breast cancer.”

Paying health care providers more will not improve the quality of health care.  Unless health workers are doing a half-assed job now.  Which I don’t believe they are.  But Roche is helping people with death sentences live another six months or so.  That’s a pretty remarkable thing.  If the NHS can’t afford this wonder drug perhaps they should use their own.  Of course they can’t.  Why?  Because they don’t have one.  For they didn’t pour hundreds of millions of dollars in developing this drug and the all those drugs that failed.

Developing a miracle drug is costly.  Money the pharmaceuticals pay up front.  Because their employees don’t work for free.  Which is why these drugs cost so much.  That high price pays for all of the costs that went into this drug.  For all of the drugs that failed.  And provides a return for investors.  Who give these pharmaceutical companies hundreds of millions of dollars up front just in the hope they may develop a miracle drug.  Which is the only way we should invest in these miracle drugs.  Because these investors will only take a chance on a good thing.  Unlike government.  Which has a history of backing the wrong investment time after time.  And pouring good money after bad.

It’s a tough choice to make.  Take health care benefits away from other patients to pay for a miracle drug for those dying from cancer.  Or let people die 6 months or so sooner.  One thing for sure, though, unionizing our health care workers won’t give either of these patients more health care benefits.  It will only leave less money for everything else.  Leading to rationing.  And longer wait times.  Because less money will pay for fewer things.  Making those other things scarcer.  Forcing people to wait longer and pay more for treatment.

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Bad Liberal Democrat Policies chased the Industrial Base out of Detroit

Posted by PITHOCRATES - June 2nd, 2013

Week in Review

A growing population is to government coffers what growing revenue is to business.  More money.  Governments at all levels collect their money by taxing the population.  The greater the population is the greater the amount of taxes they collect.  So a growing population increases the money coming into a government’s coffers.  While a shrinking population gives you a Detroit (see How to save a city by knocking down thousands of its buildings by Tim Fernholz posted 5/31/2013 on Yahoo! Finance).

The problem with Detroit, which could soon host the largest municipal bankruptcy in the country’s history, is its shrinking population. With its industrial base decimated by automation and outsourcing, a city of 1 million people in 1990 dropped to 700,000 this year, with 200,000 people leaving the city since 2008. That reduced the taxe base to fund public services. Fewer public services coupled with lower population density weighed on crime, public health and the economy.

Yes, its industrial base was decimated by the loss of all those manufacturing jobs.  But the real question is why businesses left Detroit.  And there is only one reason why a business leaves one location for another one.  Because of a more business-friendly environment elsewhere.

Detroit became a liberal Democrat bastion.  Supported by high taxes.  Including a city income tax.  And costly regulations.  These are what chased businesses out of Detroit.  After decades of this nonsense the regulations for doing work in the city grew so great that business just went elsewhere.  Or cheated the regulations.

Money flowed into city coffers.  And the public sector grew.  Including generous pay and benefit packages for their public sector workers.  Paid for with wealth they transferred from the private sector to the public sector.  Until the private sector said enough is enough.  And left the city.  For a more business-friendly environment somewhere else.  Taking all of those jobs with them.  And with no jobs people left the city.  Looking for jobs.  But as the tax base shrunk the public sector remained bloated.  Which was a problem.  A big problem.  As more and more money went for those pay and benefit packages.  Including generous pensions and health care benefits.  And less to city services.  Causing urban decay.  In time this accelerated.  With fewer and fewer people paying the taxes to support the public sector.  And when they could no longer support the public sector the city started running deficits.  Pushing it towards the “largest municipal bankruptcy in the country’s history.”  All because of an unfriendly business environment.

So this is what decimated the city’s industrial base.  Anti-business liberal Democrat policies.  For if the city wasn’t so anti-business the industrial base would still be there going strong.  Attracting new businesses from other anti-business locations.  Instead of what they have in Detroit.  A city half the size it once was.  Where they talk about tearing down houses and turning these old neighborhoods into farmland.  In what once was the automobile capital of the world.  Amazing what bad liberal Democrat policies can do.

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Trend Analysis GM and Toyota 2005—2008

Posted by PITHOCRATES - January 29th, 2013

History 101

GM’s Problems were caused by Franklin Delano Roosevelt and his Ceiling on Wages

The GM bailout is still controversial.  It was part of the 2012 campaign.  It was why we should reelect President Obama.  Because Osama bin Laden was dead.  And General Motors was alive.  But the bailout didn’t fix what was wrong with GM.  Why it went bankrupt in the first place.  The prevailing market price for cars was below their costs.  And what was driving their costs so high?  It was labor.  It was the UAW wage and benefit package that made it impossible for GM to sell a car profitably.

GM’s problems go back to Franklin Delano Roosevelt.  The country was suffering in the Great Depression with double-digit unemployment.  He wanted to get businesses to hire people.  To reduce unemployment.  And pull us out of the Great Depression.  So how do you get businesses to hire more people?  Hmmm, he thought.  Pay people less so businesses have more money to hire more people.  It was brilliant.  So FDR imposed a ceiling on wages.  Why did FDR do this?  Because he was from a rich family who didn’t understand business or basic economics.

Of course there was one major drawback to this.  How do you get the best talent to work for you if you can’t pay top dollar?  Normally the best talent can go to whoever pays the most.  But if everyone pays the same by law you might as well work at the place closest to your house.  Or across from the best bars.  No, if a business wanted the best workers they had to figure out how to get them to drive across town in rush hour traffic and sit in that traffic on the way home.  A real pain in the you-know-what.  So how to get workers to do that if you can’t pay them more?  You give them benefits.

Toyota doesn’t have the Legacy Costs that Bankrupted an Uncompetitive GM

And this was, is, the root of GM’s problems.  Those generous pension and health care benefits.  Things we once took care of ourselves.  Before our employers started providing these.  And the UAW really put the screws to GM.  Getting great pay, benefits and workplace rules.  For both active workers.  And retirees.  Even laid-off workers.  Such as the job bank.  Where GM paid workers who had no work to do.  It’s benefits like this that have bankrupted GM.  Especially the pensions and health care costs for retired workers.  Who outnumbered active workers.  Those people actually assembling the cars they sell.

It’s these legacy costs that have made GM uncompetitive.  Toyota, for example, didn’t suffer the FDR problem.  So their costs for retired workers don’t exceed their costs for active workers.  In fact let’s compare GM and Toyota for the four years just before GM’s government bailout (2005-2008).  We pulled financial numbers from their annual reports (see GM 2005 & 2006, GM 2007 & 2008, Toyota 2005 & 2006 and Toyota 2007 & 2008).  We’ve used some standard ratios and plotted some resulting trends.  Note that this is a crude analysis that provides a general overview of the information in their annual reports.  A proper analysis is far more involved and you should not construe that the following is an appropriate way to analyze financial statements.  We believe these results show general trends.  But we offer no investment advice or endorsements.

GM Toyota Current Ratio

We get the current ration by dividing current assets by current liabilities.  These are the assets/liabilities that will become cash or will have to be paid with cash within 12 months.  If this ratio is 1 it means current assets equals current liabilities.  Meaning that a business will have just enough cash to meet their cash needs in the next 12 months.  If the number is greater than 1 a business will have even a little extra cash.  If the number is less than 1 a business is in trouble.  As they won’t have the cash to meet their cash needs in the next 12 months.  Unless they borrow cash.  Toyota’s current ratio fell slightly during these 4 years but always remained above 1.  Falling as low as 1.01.  Whereas GM’s current ratio was never above 1 during these 4 years.  And only got worse after 2006.  Showing GM’s financial crash in 2008.

The GM Bailout did not address the Cause of their Bankruptcy—UAW Pensions and Health Care Benefits

There are two basic ways to finance a business.  With debt.  And equity.  Equity comes from outside investors (when a business issues new stock).  Or from profitable business operations.  Which typically accounts for the majority of equity.  Profitable business operations are the whole point of running a business.  And it’s what raises stock prices.  To see which is providing the financing of a business (debt or equity) we calculate the debt ratio.  We do this by dividing total liabilities by total assets.  If this number equals 1 then total assets equal total liabilities.  Meaning that 100% of a business’ assets are financed with debt.  And 0% with equity.  Lenders do not like seeing this.  And will be very reluctant to loan money to you if your business operations cannot generate enough profits to build up some equity.  And that was the problem GM had.  Their business operations could not generate any profits.  So GM had to keep borrowing.

GM Toyota Debt Ratio

GM went from bad to worse after 2005.  Their debt ratio went from 1.02 in 2006.  To 1.24 in 2007.  And to 1.94 in 2008.  Indicating massive borrowings to offset massive operating losses.   And how big were those losses?  They lost $17.806 billion in 2005.  $5.823 billion in 2006.  $4.309 billion in 2007.  And in the year of their crash (2008) they lost $21.284 billion.  Meanwhile Toyota kept their debt ratio fluctuating between 0.61 and 0.62.  Very respectable.  And where lenders like to see it.  As they will be more willing to loan money to a company that can generate almost half of their financing needs from profitable business operations.  So why can’t GM?  Because of those legacy costs.  Which increases their cost of sales.

GM Toyota Cost of Sales

GM’s cost of sales was close to 100% of automotive sales revenue these 4 years.  Even exceeding 100% in 2008.  And it’s this cost of sales that sent GM into bankruptcy.  Toyota’s was close to 80% through these 4 years.  Leaving about 20% of sales to pay their other costs.  Like selling, general and administrative (S,G&A).  Whereas GM was already losing money before they started paying these expenses.  Thanks to generous UAW pay and benefit packages.  The job bank.  And the even greater costs of pensions and health care for their retirees.  It’s not CEO compensation that bankrupted GM.  It was the UAW.  As CEO compensation comes out of S,G&A.  Which was less than 10% of sales in 2007 and 2008.  Which was even less than Toyota’s.

GM Toyota S G and A

GM’s costs kept rising.  But they couldn’t pass it on to the consumer.  For if they did the people would just buy a less expensive Toyota.  So GM kept building cars even though they couldn’t sell them competitively.  And sold them at steep discounts.  Just to make room for more new cars.  So the UAW could keep building cars.  Incurring massive losses.  Hoping they could make it up in volume.  But that volume never came.

GM Toyota Automotive Sales as percent of 2005

Toyota continued to increase sales revenue year after year.  But GM’s sales grew at a flatter rate.  Even falling in 2008.  It was just too much.  GM was such a train wreck that it would have required a massive reorganization in a bankruptcy.  Specifically dealing with the uncompetitive UAW labor.  Especially those pensions and health care benefits for retirees.  Which the government bailout did not address.  At all.  The white collar workforce lost their pensions.  But not the UAW.  In fact, the government bailout went to bolster those pension and health care plans.  So the underlying problems are still there.  And another bankruptcy is likely around the corner.

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Scott Walker turns Deficit into Surplus without any Layoffs while Los Angeles Furloughs Teachers

Posted by PITHOCRATES - June 10th, 2012

Week in Review

Los Angeles turns to furloughs to delay layoffs.  Betting everything on yet another tax increase this November (see Los Angeles teachers and school district reach pact to spare jobs by Howard Blume posted 6/9/2012 on the Los Angeles Times).

The Los Angeles school district and the teachers union reached a tentative agreement Friday that would prevent thousands of layoffs in exchange for 10 furlough days, which would shorten the school year by a week.

Under the accord, teachers would lose pay for five instructional days plus four holidays and one training day, equivalent to about a 5% salary cut…

If voters turn down a tax increase for schools, L.A. Unified’s budget woes would worsen considerably, the superintendent said. The equivalent of three additional weeks of school would have to be sacrificed, Deasy said. A typical school year is 180 days…

If the governor’s tax initiative passes, union officials said any additional money must go toward reducing the number of furlough days. And if teachers take the furlough days and the district ends up with a year-end surplus, teachers would be reimbursed for the pay cut, the union said.

More than 9,000 teachers had faced being laid off as of June 30…

This year’s crisis followed a familiar recession-era pattern. In 2008, the district closed a $427-million deficit; in 2009, $838 million; in 2010, $620 million; in 2011, $408 million. In all nearly 8,000 employees were laid off over the last four years; many teachers have since been rehired or used as substitutes.

Scott Walker didn’t furlough or lay off any teachers in Wisconsin.  They all kept their jobs by pitching in a little more for their benefits.  Amazing how just that can turn a deficit into a surplus.

This brings us to what’s missing in this article.  Pensions and health care benefits.  Which have to be the reason for all of those deficits.  Because public sector pensions and health care benefits are busting budgets in cities and states throughout the nation.  Especially for those retirees.  Which is why in the private sector people don’t get pensions anymore.  They save for their retirement in a 401(k).  And pay a large portion of their health care benefits.  An alien concept to those in the public sector.  But one they will soon learn.  Because the people are tired of sacrificing their lives to pay more taxes to support a privileged class who can retire earlier.  And enjoy more generous benefits in their retirement while they work well into their 60s to pay for it.

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FT121: “As liberals gain knowledge and experience they become conservatives.” -Old Pithy

Posted by PITHOCRATES - June 8th, 2012

Fundamental Truth

Carnegie and Rockefeller were able to make the World Better because of Capitalism and Free Markets

Liberals campaign hard to get the youth vote.  Before the young grow up and become responsible adults.  Lose their youthful idealism.  And their ignorance of rudimentary economics.  Kids graduating from high school don’t know much about economics.  They don’t know that JFK was a tax cutter just like Ronal Reagan.  And that those tax cuts stimulated real economic growth.  They don’t know any of this.  But they know who Al Gore is.  And will read you the riot act whenever you do anything that will increase your carbon footprint on this planet. 

Those who go on to college build on their liberal high school education.  Where they don’t learn about how Andrew Carnegie and John D. Rockefeller created the modern nation we know today.  Carnegie made steel plentiful and inexpensive.  Allowing us to build the skyscrapers in our cities.  Rockefeller made kerosene so plentiful and inexpensive that he put the whale oil industry out of business.  Saving the whales.  And gave us plentiful and inexpensive gasoline for our automobiles.  Providing fuel for our trains and planes.  Giving us the freedom to travel anywhere.  Visiting big cities like New York.  Where many of the great skyscrapers built with Carnegie steel are still standing today.

Carnegie and Rockefeller are just two entrepreneurs who changed the world.  And greatly increased our standard of living.  Who were free to make the world a better place because of capitalism and free markets.  Instead of working for a paycheck like most people do they took risks and created things.  Better steel.  And better fuel.  As well as jobs.  Lots and lots of jobs.  So people could work for a paycheck.  Why did they take these great risks?  Because the possibility of getting rich is a great incentive.  Which is why aspiring actors go to Los Angeles and starve.  Hoping to get a break.  Get discovered.  So they can become rich.   Which is why people buy lotto tickets.  To become rich.  For it appears everyone wants to get rich.  But there is a difference when people like Carnegie and Rockefeller get rich.  Everyone lives a better life when they do.  Not just the movie star or the lotto winner.

Students live College Life to the Fullest and Pursue Degrees that won’t take up too much of their Time

So what do they learn in college?  That capitalism isn’t fair.  Corporations are evil.  But communism and socialism are good.  Government intervention into the free markets is good.  And, of course, those who do learn economics only learn Keynesian economics.  The school of economics that favors government interventionism into private markets.  And that great industrialists like Carnegie and Rockefeller were greedy and exploited their workers.  While communism and socialism protected their workers.  Which is another failing of our educational system.  Students don’t learn what an abject failure communism was.  Both as an economic system.  And on human rights.  They don’t learn that.  Or that a lot of rich industrialists like Carnegie and Rockefeller spent the last years of their lives giving away the wealth they amassed.  Like some of America’s rich continue to do today.  As exemplified by Bill Gates.

No.  Their education is a poor one.  Which explains why the Indians and Chinese are passing American students by.  The goal of American public education is not to produce high test scores.  But to indoctrinate students into being good Democrat voters.  So those in the public sector unions can continue to earn more in pay and benefits than their counterparts in the private sector.  Another fact they don’t teach these young students.  They keep these students young and dumb as long as possible.  And the government helps.  By focusing on the things important to these students.  Lenient drug laws.  Birth control.  And abortion.  To make sure their first time living away from their parents is a good time.  A fun time.  And to make sure that they understand that Democrat political candidates aren’t like their parents.  Those buzz kills.  Whose favorite word in their vocabulary is ‘no’.  Not the Democrats.  They like the word ‘yes’.  As in “yes we can.”  And yes you can.  Do whatever young people with raging sex drives like to do.  And they do. 

They live college life to the fullest.  Many pursuing degrees that won’t take up too much of their time.  Taking less science and math like the Indians and the Chinese.  Because those are hard and require a lot of homework.  Instead they pursue degrees in women’s studies.  Minority studies.  Family studies.  American studies.  Communications.  Film.  Psychology.  Philosophy.  Things that are fun and have no math.  Allowing a lot of fun when outside of the classroom.  But are absolutely worthless in the high-tech economy.  The only employment opportunities for these degrees is to become a professor and teach other students these worthless degrees.

It turns out Liberalism is a Lie used to maintain a Privileged Class

So when these college graduates can’t get a job that’ll make them rich overnight they get angry.  And struggle to pay down the mountain of debt that paid for those worthless degrees.  Of course it’s not their fault.  Or the universities who sold them those worthless degrees.  It’s Wall Street’s fault.  Those evil rich people who don’t pay their fair share in taxes.  That somehow if they only paid more in taxes they could find gainful employment.

And when the young start working for a living they discover taxes.  From property taxes to payroll taxes to income taxes.  Which are a lot of taxes.  And when they start raising a family they start paying attention to what’s on television.  Which was fine when they were partying in their youth.  But somehow isn’t right now that they are parents.  They start thinking about the things they did in their youth.  And how to hide it from their kids.

And when there are ballot initiates to raise taxes to pay for budget deficits at the city and state level they pay attention to what caused these deficits.  And they don’t like what they learn.  Public sector pensions and health care benefits that are far greater than theirs.  Worse, they are not only paying for theirs (through a payroll deduction and/or lower pay) they’re paying for these generous public sector benefits via ever increasing taxes.  And they will be paying these taxes for a long time as few will be able to retire until they’re well into their sixties.  Working some 40-50 years.  While public sector retirees can enjoy their more generous benefits after only working some 20-30 years.

Which is why as liberals gain knowledge and experience they become conservatives.  Because young and dumb was fun in their youth.  But everyone has to grow up.  And learn that their parents were right.  Which is why a lot of people grow up to become conservative like their parents.  But few conservatives become liberals.  Because as it turns out liberalism is a lie.  It is just a means to maintain a privileged class.  Where life is great within the privileged class.  Where you can retire after 20-30 years and receive generous pensions and health care benefits.  But it sucks for those outside that privileged class who have to pay for it.  Which is why public education is not about test scores.  But producing good Democrat voters.  To maintain that privileged class.  Because education is in that privileged class.

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FT102: “Unlike welfare benefits health care costs are transferred to the young, not the rich.” -Old Pithy

Posted by PITHOCRATES - January 27th, 2012

Fundamental Truth

An Undereducated and Inexperienced Electorate benefits Democrats

Tax and spend liberals tax the rich to help the poor.  Something the rich don’t completely object to.  For many rich people are in favor of a safety net for those falling on hard economic times.  The rich just object to the growing welfare state.  Where the governments take ever larger sums of money out of the private economy to spend for political purposes.  To buy votes.

A lot of these feel-good welfare programs appeal to the young.  Who don’t understand policy.  Economics.  Or the effect of high taxes on the economy.  They don’t know.  Because no one taught them.  Their public school education has, instead, taught them about the perils of global warming.  And the evils of capitalism.  Which makes them staunch Democrat voters.  Until they start earning a living.  And begin raising a family.  When a lot of them become Republicans.  Which is why Democrats characterize the Republican Party as nothing but a bunch of old rich people who hate poor people.  Which they’re not.  They’ve just grown up.  And now understand things economic.

That’s why the Democrats need this youth vote.  And even floated the idea of lowering the voting age to 16.  Interesting considering the legal drinking age is 21 in most states.  Which begs the question if they are too irresponsible to drink until they reach the age of 21 why would anyone think they’re responsible enough to vote at 18 let alone 16?  But clearly an undereducated and inexperienced electorate benefits Democrats.  Who will vote for them without any idea of the consequence of their policies.

Obamacare will Require the 97% of Young People who don’t Consume Health Care Benefits to Pay for those who Do

The young support Obamacare.  And national health care.  Because they don’t understand health care.  Or the fact that more than 40% of all patients in the health care system are age 65 or older.  While they, those age 18-29, make up just 3% of all patients.

This is different from all other welfare programs.  Where we tax the rich to help the poor.  Many of the rich also happen to be age 65 or more.  So we’re basically taxing rich old people to help the poor.  Now note the difference with health care.  We’re not ‘taxing’ rich old people to help sick people.  We’re ‘taxing’ young healthy people to pay for sick old people.  And the vast majority of the young are not rich.  They are just at the beginning of their careers.  But they are healthy.  Which brings us to a very critical point in the health care debate.  Healthy people don’t see the doctor.  Because they don’t need to.  Which makes many of these young people choose not to buy health insurance.  Because they don’t need to.  Not when only 3% of them are consuming health care services.  Which is why health insurance is so expensive.  The only people who want to buy it are the biggest consumers of health care services.  That would be like people buying auto insurance only after their car was stolen.  Which doesn’t spread the risk over many policies for a small fee.  It doesn’t spread the risk at all.  And the cost of one insurance policy must approach the cost to replace a stolen car.  Which is not insurance in any sense of the word.

Obamacare includes an individual mandate to purchase health insurance.  Which means the 97% of young people who don’t consume any health care benefits will pay for those who do.  Including the more than 40% age 65 and older.  Which makes it the only government program to transfer costs to those who can least afford them.  Those just starting their careers.  Those age 18-29.

The Youth will Understand Obamacare Forcing them to Buy an Expensive Insurance Policy

The Democrats usually can count on the youth vote.  Because they are undereducated and inexperienced.  And vote for their policies without understanding the consequences of these policies.  But they will understand Obamacare forcing them to buy an expensive insurance policy.  Especially if they have to give up using their smartphone to pay for it.  Which will educate and experience them fast.  Making them responsible grownups.  And Republicans sooner rather than later.

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FT101: “Unlike government a business tries to fix bad policy before it bankrupts them.” -Old Pithy

Posted by PITHOCRATES - January 20th, 2012

Fundamental Truth

If Businesses give their Employees Overly Generous Pay and Benefits they will not be able to Stay in Business

A lot of people say businesses are greedy.  That they are always trying to go on the cheap when it comes to their employees.  The fatal flaw of capitalism some even say.  That need to make a profit.  And because of the profit-incentive businesses try to use as few employees as possible.  While paying them as little in pay and benefits as possible.  Which they, of course, do.  Because that’s the only way they can stay in business when their customers are doing the same.  When we go to the store looking for the maximum value at the lowest price.

You see, a business has to earn enough sales revenue to cover all their costs.  And their sales prices include these costs.  If these costs are too high people won’t buy from them.  So this is the reason why they pay their employees as little in pay and benefits as possible.  Because of us.  And our greed.  To keep as much of our money as possible when shopping.

So businesses can’t be overly generous to their employees.  For if they are they are then faced with two choices.  Raise prices to pay for this generosity.  Thus dissuading consumers from buying from them.  Which reduces their sales revenue.  Or they can choose not to raise their prices.  Which will increase their costs greater than their sales revenue.  Either way it’s bad for business.  For if they give their employees overly generous pay and benefits they will lose money.  And not be able to stay in business.

Businesses must make these Difficult Choices if they wish to Survive in the Real World

In free market capitalism businesses have real constraints.  They can’t be overly generous.  Because they won’t be able to earn enough revenue to cover their costs.  But neither can they be too miserly with their employees.  Because they have to be generous enough to entice them to work for them.  It’s this balancing act between generosity and being too cheap that causes a business problems.  Because in good economic times employees like to demand more.  And if they don’t get it where they currently work they will leave and work for someone else.  So employers are generous.  Sometimes too generous.  Which they usually learn when the good times end and they can no longer cover their costs at the new levels of revenue during those bad economic times.

A business cannot raise revenue by simply saying ‘raise revenue’.  For it is not up to them.  It’s up to the consumer.  And during bad economic times they’re just not buying like they once were.  Which leaves a business only one choice.  They must cut costs.  Either by cutting back on pay and benefits.  Or by really cutting back on pay and benefits.  By laying off employees.  It’s either that or they will bankrupt themselves out of business.

All businesses must make these difficult choices.  If they wish to survive.  Because they live in the real world.  Capitalism.  Where there are winners and losers.  And where businesses fail because they don’t make the difficult choices when they have to.  We’ve all seen a favorite store go out of business.  It may not always be because of the cost of their employees.  But it is always because they’re not earning enough revenue to cover their costs.

Difficult Choices are Rarely Politically Expedient and don’t bring in Many Votes

Health care costs and pensions have been the biggest costs businesses have struggled with.  That’s why defined benefit pension plans are a thing of the past.  Unless you’re in a union.  Or in government.  And employees are contributing more to the cost of their health care benefits.  Why?  Because of our aging population.  People are having fewer babies and are living longer.  And consuming more health care and pension benefits in their retirement than the actuaries ever dreamed possible when they created the health care benefit and defined benefit pension plans.

It’s no different in the public sector.  In fact, it’s worse.  Government grew.  And taxes grew to pay for that growing government.  It became more expensive to have babies.  So people had fewer.  Made possible by birth control and abortion.  Now there are fewer and fewer young people entering the work force to pay the taxes to pay for the ever growing number of seniors in their retirement.  Again, something the actuaries never calculated.  And there’s no way to fix it.  It’s a failed model.  But government won’t give up on this bad policy.  Unlike businesses have.  Because government doesn’t operate in the real world.  Like those businesses.

Government can do things businesses can’t.  They can tax.  They can run deficits.  Paid by massive borrowings.  And they can print money.  So they don’t have to make the difficult choices.  And chose not to.  Because those difficult choices are rarely politically expedient.  And don’t bring in many votes.

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LESSONS LEARNED #65: “The only thing the market is inefficient at is funneling money to anti-business politicians.” -Old Pithy

Posted by PITHOCRATES - May 12th, 2011

Microsoft Learns the hard way about the Costs of Lobbying

Once upon a time Microsoft had no lobbyists.  Microsoft grew to dominate the PC operating system with no help from the government.  Bill Gates became the richest man in the world with no help from the government.  And how did that go over with the government?  Not well.

Because of complaints by Microsoft’s competitors, the U.S. Justice Department began antitrust proceedings against Microsoft.  The complaint?  Microsoft was giving away something for free that others wanted to sell.  A web browser program.  Internet Explorer (IE), to be specific.  The competitors said that Microsoft had an unfair advantage when they bundled IE with their operating system.  Because why would people pay for something that they can get for free?  Consumers never complained about getting something free.  Just other corporations trying to make consumers pay for something that they could get free from Microsoft.  So the Justice Department went after Microsoft so consumers could no longer get something for free.  In other words, the antitrust case against Microsoft was to raise prices.  Which is kind of the opposite reason for an antitrust case.

Government may not know how to create or expand business activity.  But they sure know how to hurt a business.  Microsoft still bundles IE with their operating system.  But they learned a very important lesson.  And, today, Microsoft spends millions of dollars on lobbyists.  To lobby politicians for nothing in particular.  But to pay tribute.

There was no Health Care Cost Crisis before World War II

Once upon a time people paid their doctor’s bill.  Really.  They’d see their doctors.  The doctor would bill them.  And they would pay.  Of course, that was a long time ago in a mystical place.  The United States.  Before World War II.  Yeah, I know.  Crazy talk.  Paying your doctor’s bill.  But some crazy sons of bitches really did. 

Of course, back then, medicine wasn’t socialized yet.  Market forces controlled medical costs.  How, you may ask?  Simple.  The people ‘buying’ the medical services paid the bill.  Medical services were just another service provided by licensed professionals.  Like a plumber.   And though plumbers are expensive, they are affordable.  Because if they weren’t affordable, there wouldn’t be a market for their plumbing services.  As it was for doctors.  Before World War II.  Doctor services were affordable.  Because if they weren’t, there wouldn’t be a market for their medical services.  And it worked like this until World War II.  When health care became a benefit.  And benefit administrators came between buyers and sellers of medical services.

Let’s do a little experiment.  Let’s say you work for a company that is putting together a company picnic.  The company is paying the tab for all 20 employees attending.  And you get a company credit card to buy the food with no restrictions given.  What are you going to buy?  Hotdogs and hamburgers?  Or filet mignon?  Now, later in the summer, you’re having a family BBQ.  There’ll be 20 people in all.  But this time you’re paying the entire bill.  What are you going to buy?  Hotdogs and hamburgers?  Or filet mignon?  Chances are that you’ll be eating different food at these events.

The Price Mechanism doesn’t work if someone else Pays our Bills

Do you see how having someone else pay for your benefits affects your purchasing decisions?  You’ll be enjoying filet mignon on the company’s dime.  But you’ll be satisfied with hotdogs and hamburgers on your dime.  This is the problem in post World War II health care.  There are no market forces anymore in health care.  Someone else is paying for your benefits.  So you don’t care what the costs are.  So you’ll never object to getting the filet mignon of health care benefits.  Even if you’re a single guy.  And your employer is paying for insurance that includes breast and cervix exams.  If you were paying the full cost of your health insurance bill, though, you probably would not pay for breast and cervix exams.  Sure, they’re nice.  But as a guy you would probably never use these benefits.  So you probably wouldn’t pay for them.

This is a big reason why health care costs are so out of control today.  There are no market forces in play to control costs.  Other people pay for our benefits.  So we never ask, “Can I afford this?”  Which everyone does before hiring a plumber.  Dr. Gratzer, a physician and senior fellow at the Manhattan Institute, wrote that Americans pay only twelve cents for every dollar of health care services they receive.  Which means 88% of the American health care is already socialized medicine.  In other words, other people pay for 88% of an American’s health care.  And when other people are paying, how often do you ask, “How much does this cost?”

This is why health care costs are out of control.  Elsewhere in the economy prices serve as a mechanism to adjust supply and demand.  Not in health care.  No one knows the prices in health care.  Because no one asks.  And the further we go in this direction the worse it’s going to get.  Yet that is exactly the direction some in government want to take health care.  Why?

Politicians Matter more than the Cost of Health Care

Because the market is efficient.  It works very well when left alone.  Just ask Bill Gates.  Or anyone who saw a doctor before World War II.  The market works.  But it has one drawback.  It doesn’t need government.  And for those who are looking for a career in politics, that’s a problem.

Microsoft wasn’t harming any consumers.  They were hurting other businesses that couldn’t make consumers spend more money.  So the politicians stepped in.  To show they mattered.  And cared.  Also, Microsoft was obscenely wealthy.  A little lobbying on their part could fill a few campaign war chests.  And provide a nice vacation or two.  They just needed to see the light.  How things worked in Washington.

But becoming a senator or a representative needs more than a fat war chest.  You need people to vote for you.  And a good way to do that is to get as many people dependent on government as possible.  Either as patients in a new national health care system.  Or as employees in a vast new bureaucracy for the new national health care system.  Which is why they’re not turning to the free market to fix the cost problems in their health care system.  Like they are in the UK and Canada.  They don’t want to fix the cost problems.  They want the dependency created by a new national health care system.  They can worry about costs later.  After they’ve taken over one-sixth of the U.S. economy.

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Collective Bargaining in Wisconsin – Greed versus the Taxpayers

Posted by PITHOCRATES - February 25th, 2011

Democracy in Action and Whiny Democrats in Wisconsin

The Wisconsin Democrats need to take a refresher course in democracy.  Because democracy isn’t oligarchy.  The minority power can’t have its way.  No matter how unhappy they are.  Elections have consequences.  Like Obama said.  The Obama Administration governed without the consent or input of the minority power.  It may not have been nice or what he said he would do during the campaign.  But it was legal.  And democratic.  So Obama governed against his campaign platform.  And the American people.  The people didn’t like that.  And gave the House back to the Republicans in the 2010 mid-term elections.

You see, that’s how democracy works.  You don’t whine and cry when you can’t have your way.  You compete in the arena of ideas.  Win elections.  And govern accordingly.  And when you lose elections you don’t govern any more.  Unless you’re a bunch of whiny cry babies in Wisconsin (see Capitol Chaos: Assembly Passes Budget Repair Bill by Charles Benson, Jay Sorgi and the Associated Press posted 2/25.2011 on todaystmj4.com).

Shortly after 1:00 a.m., after more than 60 hours of debate on this, the Republicans quickly called for the vote, which ended all debate.

Some of the Democrats were so taken aback by what had happened, they didn’t get a chance to vote. 

The vote happened so fast, within seconds, that the bill pass with Republican voting for it, but while they were voting, Democrats kept yelling, “No!  No!  You can’t do this!”…

After it passed, Republicans started walking off the floor, and the Democrats started yelling “Shame!  Shame!  Shame!” as Republicans walked off, one by one, and left the Assembly floor.

Obamacare was hustled through a lot faster with a lot of bribes.  There was no debate.  Nancy Pelosi said we had to pass it to learn what was in it.  The Democrats had no problem with that vote.  The vote in Wisconsin, on the other hand, they do. 

The people of Wisconsin, unhappy with the Democrats, voted in a Republican controlled legislature.  And a Republican governor.  The Republicans had the majority.  The Democrats didn’t.  It’s called democracy.  Which they’re all for.  When they are in power.  But when they’re not in power democracy just isn’t fair.  And they whine.

Of Course they’re Over-Compensated

After the vote layoff notices went out.  The UPI reports teachers are so anxious that they were breaking out in tears.  And for good reason.  They have some pretty nice jobs.  All public sector workers do.  I mean, they wouldn’t be making such a big fuss if those jobs were as bad as they would have us believe.

We the taxpayers pay public sector workers well.  And we’ve been giving them the best of benefits.  Well, yes and no, say the critics.  They’re smart.  Well educated.  And underpaid for their brains.  The critics say people in the private sector with the same education are compensated more.  That’s a little hard to believe.  Because few give up those public sector jobs once they get them (see Everything You Need to Know about Whether State and Local Bureaucrats Are Over-Compensated, in One Chart by Daniel J. Mitchell on 2/25/2011 on CATO@Liberty).

The data on total compensation clearly show a big advantage for state and local bureaucrats, largely because of lavish benefits (which is the problem that Governor Walker in Wisconsin is trying to fix). But the government unions argue that any advantage they receive disappears after the data is adjusted for factors such as education.

This is a fair point, so we need to find some objective measure that neutralizes all the possible differences. Fortunately, the Bureau of Labor Statistics has a Job Openings and Labor Turnover Survey, and this “JOLTS” data includes a measure of how often workers voluntarily leave job, and we can examine this data for different parts of the workforce…

Not surprisingly, this data shows state and local bureaucrats are living on Easy Street. As the chart illustrates, private sector workers are more than three times as likely to quit their jobs.

The reason someone doesn’t quit a job is simple and straight forward.  They can’t find a better one.  Over in the private sector, they say the way to increase your compensation is to make a few moves to other companies.  Let private employers bid up your salary.  This isn’t how it works in the public sector.  Pay and benefits have nothing to do with ability.  You get in and you stay put.  And let the union shake down the taxpayers for ever more generous pay and benefits.

Greedy Teachers and the Poor Taxpayers they Shake Down

Wisconsin teachers are calling in sick to show up at these protests.  They are using fraudulent doctor’s notes handed out at the protests to excuse their ‘sick’ days.  That’s not very ethical.  And probably not very legal.  Or a good lesson for the children they teach (some of which have joined them in the protest as useful pawns for the children can’t possibly understand what’s really at stake here).  So why would they go to these lengths?  Will the governor force them to choose between food and medicine?  Will they have to eat cat food?  I doubt it.  For it looks like they’re currently enjoying champagne and caviar (see Oh, To Be a Teacher in Wisconsin by Robert Costrell posted 2/25/2011 on The Wall Street Journal).

The average Milwaukee public-school teacher salary is $56,500, but with benefits the total package is $100,005, according to the manager of financial planning for Milwaukee public schools.

Wow.  That’s like having one job and getting two paychecks.  And they only work 9 months out of the year.  And get a lot of time off when they do work.  That is some pretty sweet compensation.  I can see why they protest.  They are a privileged elite.  And like elites, they don’t like giving up their elitism.

So how do the benefits add up to $100,005 in total compensation for an average public-school teacher?  Well, thanks to collective bargaining, they get pensions and health care benefits like no one does in the private sector.

•Social Security and Medicare. The employer cost is 7.65% of wages, the same as in the private sector.

•State Pension. Teachers belong to the Wisconsin state pension plan. That plan requires a 6.8% employer contribution and 6.2% from the employee. However, according to the collective-bargaining agreement in place since 1996, the district pays the employees’ share as well, for a total of 13%.

•Teachers’ Supplemental Pension. In addition to the state pension, Milwaukee public-school teachers receive an additional pension under a 1982 collective-bargaining agreement. The district contributes an additional 4.2% of teacher salaries to cover this second pension. Teachers contribute nothing.

•Classified Pension. Most other school employees belong to the city’s pension system instead of the state plan. The city plan is less expensive but here, too, according to the collective-bargaining agreement, the district pays the employees’ 5.5% share.

•Health care for current employees. Under the current collective- bargaining agreements, the school district pays the entire premium for medical and vision benefits, and over half the cost of dental coverage. These plans are extremely expensive.

This is partly because of Wisconsin’s unique arrangement under which the teachers union is the sponsor of the group health-insurance plans. Not surprisingly, benefits are generous. The district’s contributions for health insurance of active employees total 38.8% of wages. For private-sector workers nationwide, the average is 10.7%.

•Health insurance for retirees. This benefit is rarely offered any more in private companies, and it can be quite costly. This is especially the case for teachers in many states, because the eligibility rules of their pension plans often induce them to retire in their 50s, and Medicare does not kick in until age 65. Milwaukee’s plan covers the entire premium in effect at retirement, and retirees cover only the growth in premiums after they retire.

No one in the private sector gets these benefits.  No one.  Unless they make very large contribution towards them.  Whereas the teachers get them totally free.  Is that fair?  People bitch about CEO compensation but at least it’s the shareholders who have last say on that.  In Wisconsin it is doubtful the taxpayers even know what their public-school teachers are making.  Courtesy of their tax dollars.

Overall, the school district’s contributions to health insurance for employees and retirees total about 50.9 cents on top of every dollar paid in wages. Together with pension and Social Security contributions, plus a few small items, one can see how the total cost of fringe benefits reaches 74.2%.

What these numbers ultimately prove is the excessive power of collective bargaining. The teachers’ main pension plan is set by the state legislature, but under the pressure of local bargaining, the employees’ contribution is often pushed onto the taxpayers. In addition, collective bargaining led the Milwaukee public school district to add a supplemental pension plan—again with no employee contribution. Finally, the employees’ contribution (or lack thereof) to the cost of health insurance is also collectively bargained.

As the costs of pensions and insurance escalate, the governor’s proposal to restrict collective bargaining to salaries—not benefits—seems entirely reasonable.

And there you have it.  Why the Left is panicking about what’s going on in Wisconsin.  And it ain’t about the children.  Health care benefits and pensions can’t get any less about the children.  Collective bargaining has given the public sector workers great pay and benefits at the taxpayer’s expense.  All without having the taxpayer to approve these generous compensation packages.  Unlike shareholders in private corporations. 

Collective bargaining for public sector workers enables the transfer of huge sums of money from the private sector (the taxpayers) to the public sector.  Union members pay dues.  And guess who unions support in elections.  Democrats.  If other states follow suit the Democrats stand to lose a lot of campaign cash and foot soldiers.  And this is what it’s really about in Wisconsin.  Greed.  The greed of public sector workers.  And the greed of Democrats.

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Health Care and the Deficit: Government Bureaucracy vs. Market Forces

Posted by PITHOCRATES - December 12th, 2010

Birth Control and Abortion Bankrupting our Nation

Health care is expensive.  When it comes to the federal budget, nothing costs more.  And its cost will only increase (see Health Care and the Deficit editorial published 12/11/2010 on The New York Times).

This year, Medicare, Medicaid and a related children’s health insurance program will account for more than 20 percent of all federal spending — higher than Social Security or defense. Unless there are big changes, by 2035 federal health care spending — driven by rising medical costs and an aging population — is projected to account for almost 40 percent of the budget.

Politicians are whores who steal from the American people.  Earmarks, kickbacks, patronage, fat pay and benefit packages, uber generous pensions, whatever.  The bottom line is that they’re screwing us while they live a far better life than we ever will.  And as bad as their screwing of us is, their screwing of us ain’t the worse of it.  It’s the entitlement spending that’s gonna bankrupt us.  Especially healthcare spending for old people.

Thanks to birth control and abortion, the American people shrunk their family size starting with the boomer generation.  Instead of 10 kids in a family we started to have only 2 or 3 kids.  And it is this reduction in family size that will ultimately bankrupt our nation.

Cutting Medicare Because Nothing else is Big Enough to Cut

Thanks to birth control and abortion, we have an aging population.  The kids of families with 10+ kids are aging and reaching retirement.  But the kids of families with 2-3 kids are paying their Social Security and Medicare benefits.  More people are collecting benefits than are paying taxes to fund those benefits.  BIG problem.

When FDR implemented the great Ponzi scheme, Social Security, a bunch of people were supporting each beneficiary.  As the population ages, fewer and fewer people are supporting each beneficiary.  So they have to keep raising taxes on each individual.  But there is a limit.  Eventually, an individual will have to pay more in taxes to support a retiree than they spend on their own family.  And few people will whistle a happy tune when more of their hard-earned pay goes to someone else instead of their own family. 

If we’re not having more babies, then we gotta cut costs.  There’s no ifs, ands or buts about it.  So they’re talking about cutting costs.  By making us pay more for our benefits.

The White House commission, headed by Erskine Bowles and Alan Simpson, proposes to wring nearly $400 billion from health care spending between 2012 and 2020, of which the biggest single element — $110 billion — would come from increased cost-sharing by Medicare beneficiaries. The second commission, an independent panel headed by Pete Domenici and Alice Rivlin, seeks to save $137 billion from Medicare cost-sharing.

So even though Obama denied it over and over again, they’re going to cut Medicare.  Why?  It’s the 800 pound gorilla in the room.  To make any significant cost savings you gotta cut something big.  And few things are bigger than Medicare.

Taxing our Health Care Benefits

They’ll cut Medicare.  And raise taxes.

The Domenici-Rivlin panel, the more aggressive on health care, would also phase out the exclusion that exempts workers from paying taxes for employer-subsidized insurance, a benefit that also encourages excessive use of medical care. The long-term gain in tax revenue could be huge — more than $3 trillion between 2012 and 2030 and almost $10 trillion by 2040.

Few people don’t realize how much their employer pays for their health insurance.  They will now.  Though they won’t be getting a big pay raise, they will pay taxes as if they had.  That’s right, they will tax the total cost of your health care benefits as taxable income.  Even if you never see a doctor.

Wither on the Vine

You know things are bad when they propose something their enemy once proposed.

The Domenici-Rivlin panel has a far-reaching proposal to give Medicare enrollees vouchers to buy coverage from Medicare or a competing private plan offered on a Medicare exchange. The voucher would increase in value at roughly half the likely rate of medical inflation. If the cost of coverage rose faster than that, the beneficiary would have to pay an extra premium to cover the difference or seek a cheaper plan.

Sound familiar?  Newt Gingrich proposed this.  Back in the 1990s.  He said that as more people voluntarily enrolled in private insurance Medicare would wither on the vine.  Of course, the political opposition said Gingrich was just trying to kill senior citizens.  So his proposal was defeated.  And here we are.  Same problem.  Only more costly to solve now.

Competition Makes Everything Better

The big problem with health care is that there is no competition.  No market forces.

The commission believes that competition on the exchanges will cause insurance plans to find ways to lower premiums. It also believes beneficiaries will restrain their own spending. The panel projects savings from premium support and its near-term cuts and cost-shifting could be huge — more than $2 trillion through 2030 and more than $7 trillion through 2040.

Competition makes everything better.  And there’d be more competition now.  If the government didn’t forbid it.  For it is the government that forbids insurance companies from competing across state lines.

Can you Say Death Panels?

A spending cap is just another way to say rationing. 

The health care reform law already seeks to cap the growth in Medicare spending per beneficiary to roughly half the rate it has been increasing in recent decades. It empowers a new board to find savings should the target be breached, subject to Congressional veto. The Bowles-Simpson commission would expand that approach by placing a cap on total federal spending for health care — not just Medicare and Medicaid but the subsidies on new exchanges and tax exemptions. But the commission punts on what to do should the growth cap be exceeded, as many experts deem likely.

This board will have the power of life and death.  They will say who will live.  And who will die.  They can deny it but that’s what rationing is.  We have enough healthcare services for one person today.  Who will get it?  The 39 year old factory worker who has many taxpaying years left (so the government can recoup its ‘investment’)?  Or the old retired guy?  Hmm.   The old retired pain in the ass who won’t hurry up and die?  Or the young guy that we can squeeze more taxes out of for another 20 years or so?

Cut Out the Middle Man

They have big hopes for Obamacare.

The best way to lower health care spending is to reform the dysfunctional health care system whose costs seem unrelated to the quality of care delivered. The reform law makes a good start, sponsoring research to determine which treatments are effective and which are not, starting pilot projects to change the way care is delivered and paid for, and setting up new organizations to rush successful approaches into wide use in Medicare and ultimately the private sector.

The problem with health care is that we approach it from a cost standpoint rather than a quality of care standpoint.  No law or board will change that.  Real competition would.  Such as allowing insurance companies to compete across state lines.

One thing not mentioned by the New York Times is tort reform.  If we keep the jackals off of the doctors, they can spend more time administering health care instead of enriching ambulance chasers.

Perhaps the greatest cost control measure we can take is to cut out the middle man.  Have people pay for the services they receive.  Health care insurance is supposed to be insurance.  Not welfare.  It is to protect us from unexpected catastrophic medical expenses.  Like cancer.  Not to pay for a doctor appointment because we have the sniffles.

We Need more Market Forces.  Not more Government.

Increasing the size of a bureaucracy never made anything more efficient.  Price caps never made anything more plentiful.  And having someone else pay your bills never gives you the best quality.  That’s why we say beggars can’t be choosy.  Because we give beggars crap.

To fix our health care insurance woes we need to introduce market forces.  Not more government.  Medical savings accounts and tort reform would go a long way in fixing our problems.  As will competition across state lines.  And, of course, repealing Obamacare.

And we need to pay for our health care services.  For when we pay we seek the best value for our money.  Because we give a damn.  Unlike a disinterested government bureaucrat.

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