Aging Populations and Replacement Birthrate

Posted by PITHOCRATES - April 28th, 2014

Economics 101

(Originally published July 8th, 2013)

Trying to follow a Baby Boom with a Baby Bust creates Problems in Advanced Economies with Large Welfare States

In the late 1960s began a movement for zero population growth.  It called for women to have only enough babies to replace the current population.  Not to have too many babies that would increase the population.  Nor have too few babies that the population declines.  Something that women could easily do because of birth control.  And, later, abortion.  The drive behind this was to save the planet.  By keeping large populations becoming like a plague of locusts that devour the earth’s resources and food until the planet can no longer sustain life.

China did these zero population growth people better.  By promoting a negative population growth rate.  Limiting parents to one child.  They did this because during the days of Mao’s China the country set some world records for famine.  Their communist state simply couldn’t provide for her people.  So to help their communist system avoid future famines they tried to limit the number of mouths they had to feed.  Of course, trying to follow a baby boom with a baby bust creates other problems.  Especially in advanced economies with large welfare states.

China’s one-child policy and the preference for boys have led to a shortage of women to marry.  Some Chinese men are even looking at ‘mail-order’ brides from surrounding countries.  But China is going to have an even greater problem caring for her elderly.  Just like Japan.  Japanese couples are having less than 1.5 babies per couple.  Meaning that each successive generation will be smaller than the preceding generation.  As couples aren’t even having enough children to replace themselves when they die.  Leaving the eldest generation the largest percentage of the overall population.  Being paid and cared for by the smallest percentage of the overall population.  The younger generation.

States with Aging Populations are Suffering Debt Crises because they Spend More than their Tax Revenue can Cover

As nations develop advanced economies people develop careers.  Moving from one well-paid job to another.  As they advance in their career.  Creating a lot of income to tax.  Allowing a large welfare state.  Which is similar to a Ponzi scheme.  Or pyramid scheme.  As long as more people are entering the workforce than leaving it their income taxes can pay for the small group at the top of the pyramid that leaves the workforce and begins consuming pension and health care benefits in their retirement.  And there is but one requirement of a successful pyramid scheme.  The base of the pyramid must expand greater than the tip of the pyramid.  The wider the base is relative to the top the more successive the pyramid scheme.  As we can see here.

Babies per Generation - Constant Replacement Birthrate

Generation 1 is at the top of the pyramid.  It is the oldest generation.  Which we approximate as a period of 20 years.  In our example Generation 1 are people aged 78-98.  They’re retired and collecting pension, health care and other benefits.  Some combination of Social Security, Medicare, Medicaid, food stamps, heating assistance, etc.  All paid for by Generation 2 (58-78), Generation 3 (38-58) and Generation 4 (18-38).  Each generation is assumed to bring 6 children into the world.  So these couples are not only replacing themselves but adding an additional 4 children to further increase the size of the population.  Which really makes running a pyramid scheme easy.  For if we assume each member in Generation 1 on average consumes $35,000 annually in benefits that Generations 2 through 4 pay for that comes to $555.56 per person annually.  Or $46.30 per person monthly.  Or $10.68 per person weekly.  Or $1.53 per person daily.  Amounts so small that Generations 2 through 4 can easily pay for Generation 1′s retirement.  Now let’s look at the impact of a declining birthrate with each successive generation.

Babies per Generation - Declining Replacement Birthrate

When all couples in each generation were having on average 6 children this added 1.9 billion new taxpayers.  Which greatly reduced each taxpayer’s share of Generation 1′s retirement costs.  But thanks to birth control, abortion and the growing cost of living each successive generation has fewer babies.  Generation 2 only has 3 children.  Enough to replace themselves.  And add one new taxpayer.  Generation 3 has only 2 children.  Only enough to replace the parents.  Providing that zero population growth that was all the rage during the late 1960s and the 1970s.  While Generation 4 only has 1 child.  Not even enough to replace the parents when they die.  Causing a negative population growth rate.  Which is a big problem in an advanced economy with a large welfare state.  For instead of adding 1.9 billion new taxpayers they only add 217.5 million new taxpayers.  Greatly increasing each taxpayer’s share of Generation 1′s retirement costs.  Instead of paying $555.56 per taxpayer they each have to pay $5,384.62 annually.  Or $448.72 per taxpayer monthly.  Or $103.55 per taxpayer weekly.  Or $14.79 per taxpayer daily.  Numbers that prove to be unsustainable.  The state simply cannot tax people this much for Generation 1′s retirement.  For if they did this and added it to the rest of government’s spending they’re taxing us to fund it would take away all of our income.  This is why advanced economies with aging populations are suffering debt crises.  Because their spending has grown so far beyond their ability to pay for it with tax revenue that they borrow massive amounts of money to finance it.

If you want a Generous Welfare State you need Parents to have More Children

If you carry this out two more generations so every generation only has one child the per taxpayer amount tops out at $14,736.84 annually.  Or $1,228.07 per taxpayer monthly.  Or $283.40 per taxpayer weekly.  Or $40.49 per taxpayer daily.  Amounts far too great for most taxpayers to pay.  This is what an aging population does in a country with a large welfare state.  It makes the population top-heavy in elderly people who no longer work (i.e., pay taxes) but consume the lion’s share of state benefits.  When couples were having 6 children each across the generations there was a ratio of 84 taxpayers per retiree.  When there was a declining replacement birthrate that ratio fell to 15 taxpayers per retiree.  If we look at this graphically we can see the pyramid shape of this generational population.

Generational Population - Constant Replacement Birthrate

With 84 taxpayers per retiree we can see a nice and wide base to the pyramid.  While the tip of the pyramid is only a small sliver of the base (Generation 4).  Making for a successful Ponzi scheme.  Far more people pay into the scheme.  While only a tiny few take money out of the scheme.  This is why Social Security and Medicare didn’t have any solvency problems until after birth control and abortion.  For these gave us a declining replacement birthrate over time.  Greatly shrinking the base of the pyramid.  Which made the tip no longer a small sliver of the base.  But much closer in size to the base.  That if it was an actual pyramid sitting on the ground it wouldn’t take much to push it over.  Unlike the above pyramid.  That we could never push over.  Which is why the above Ponzi scheme would probably never fail.  While the one below will definitely fail.

Generational Population - Declining Replacement Birthrate

If you want a generous welfare state where the state provides pensions, health care, housing and food allowances, etc., you need parents to have more children.  For the more children they have the more future taxpayers there will be.  Or you at least need a constant replacement birthrate.  But if that rate is below the rate of a prior baby boom the welfare state will be unsustainable UNLESS they slash spending.  The United States has a replacement birthrate below the rate of a prior baby boom.  While the Obama administration has exploded the size of welfare state.  Especially with the addition of Obamacare.  Making our Ponzi scheme more like the second chart.  As we currently have approximately 1.75 taxpayers supporting each social security recipient.  Meaning that it won’t take much pushing to topple our pyramid. We’re at the point where a slight breeze may do the trick.  For it will topple.  It’s just a matter of time.

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Obamacare is even less Consumer-Friendly than Cable/Television/Telephone Television

Posted by PITHOCRATES - April 17th, 2014

Week in Review

Currently there are no market forces in health care.  Which is why health care costs are so high.  When buyers and sellers meet they always agree on a price that makes them both feel like winners.  Just watch an episode of one of those pawn shop shows.  The seller wants a higher price.  The buyer wants to pay a lower price.  As they move towards each other they arrive at a price that makes them both happy.  The seller gets an amount of money he values more than the thing he’s selling.  And the buyer is getting something he values more than the money he’s paying for it.  Making them both feel like winners.

It’s not like this in health care.  Because there is a third party between the buyer and seller.  Either an insurance company.  Or the government.  Just like there is a third party between networks’ programming content and the consumer.  The cable/satellite/phone company (see Why Your Cable Bill Keeps Going Up by Evan Weiner posted 4/12/2014 on The Daily Beast).

The television networks and the television carriers, whether it’s through cable, satellite or phone lines, carriers seeming are always fighting these days over the cost of programming and what rights’ fees should be. The rights’ fee is what a television carrier pays for a networks programming. The carrier then passes that cost along to consumers and tacks on an additional fee because they too feel the need to be compensated for bringing the program into a home.

The injured party is the subscribers who have little course to affect the talks unless they decide to drop their provider for another, and there is no guarantee switching to another provider will end TV blackouts…

Thanks to the 1984 Cable TV Act, cable subscribers have really no say in what they want for their needs. The cable carrier was allowed to establish tiers of services. The consumer could take a local, basic tier alone or basic and basic extended but would have no choice in what they wanted to buy and were forced to take whatever the multiple system operative wants to give them or they opt out of having cable TV. The same apparently holds true for satellite TV and the phone companies.

Cable/satellite/telephone television is like Obamacare.  As consumers can’t keep the programming they liked and wanted to keep.  As it is for Obamacare.  Where people who had health insurance they liked and wanted to keep could not keep it.  Instead, a third party, the government, forced them to buy a tier of health insurance they did not want.  Only they do not have the option to opt out of Obamacare.  Because buying health insurance is mandatory.  Unlike cable/satellite/telephone television.  For as much as we may hate our cable/satellite/telephone companies at least we don’t have to buy from them under penalty of law.

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Guns, Butter and Abortion

Posted by PITHOCRATES - February 24th, 2014

Economics 101

Democrats will cut Defense but not Entitlements because fewer People in Defense vote Democrat

A cornerstone of the Obama presidency is social justice.  Primarily through redistribution of wealth.  Raising taxes to fund a growing welfare state.  To help those not lucky enough to have won life’s lottery.  Such as expanding the food stamp program (Supplemental Nutrition Assistance Program).  Which has grown over 70% under President Obama.

Of course, this costs money.  A lot of it.  Added on top of an already costly welfare state.  Driven by entitlement spending.  Social Security.  And Medicare.  The biggest portions of federal spending.  And it only keeps growing.  Making the welfare state unsustainable without entitlement reform.  But the politicians won’t touch entitlements.  The third rail of politics.  Because they’re afraid of losing votes in the next election.  So they’d rather the country implode instead of reforming entitlements.  And hope that implosion comes after they’re dead and buried.  For as long as they get to enjoy their lives they could give a rat’s behind about future generations.

But they will touch defense spending.  And often do when they are looking for more money for the welfare state.  Even now.  The Obama administration is proposing spending cuts in defense spending.  That will shrink the size of the military.  And cut pay and benefits for some of the lowest paid people in the country.  The people who go in harm’s way for their country.  They won’t touch entitlement spending because it may hurt people that typically vote Democrat.  But they have no problem doing just that to those who wear a uniform to serve their country.  Who don’t always vote Democrat.  Just so they can have a generous welfare state like the European social democracies they so admire have.  Who can have them because they don’t have large defense budgets.  For the United States has been protecting them since World War II.

People can’t pay Taxes to fund a Welfare State without a Job that Provides an Income to Tax

If you watch television you’ve probably heard New York State’s commercials to attract new businesses to New York.  Where the state is promising that businesses will be “100% tax-free for 10 years.  No income tax, business, corporate, state or local taxes, sales and property taxes, or franchise fees.”  Which is a clear admission from the state with the second highest tax burden in the country that high taxes hurt business.

The tax burden is so great in New York that some businesses have moved their operations out of state.  And people with vacation homes in New York who only visit them a couple of weeks out of the year are selling them.  As the state is taxing their incomes as if they are permanent New York residents.  But despite these high taxes New York has suffered great budget deficits.

New York City is a Democrat city.  Their high taxes pay for a large welfare state.  A large public sector.  And the enormous costs of their public sector benefits.  In particular, health care and pension costs.  But their high tax rates have shrunk the tax base.  Because people can pack up and move out of state.  Just as businesses can.  Which is why they are doing a 180-degree turn on taxes.  In a desperate attempt to get businesses to come to New York.  For even if these businesses aren’t paying taxes their employees will.  Income taxes.  Sales taxes.  Property taxes.  Liquor taxes.  Cigarette taxes.  Etc.  None of which they can pay if there are no jobs to give them an income the state can tax.

The Number of Abortions is having a Direct Impact on the Economy and Tax Revenue

New York City released its SUMMARY OF VITAL STATISTICS 2012 THE CITY OF NEW YORK PREGNANCY OUTCOMES this month.  In it you can find why New York City, New York State and the federal government are having such a difficult time paying for their welfare states.  It’s because of liberal Democrat policies.  Not on the spending side of the equation.  But on the revenue side of the equation.

In 2012 there were 73,815 abortions.  Which are future taxpayers that weren’t allowed to be born.  That’s right, before anyone pays the high tax rates of a welfare state they have to be born first.  And when they are not born that’s future tax revenue the government cannot collect.  If we look at a 20 year period (about a generation) and assume 73,815 abortions each of those 20 years that’s 1,476,300 people that never will pay taxes.  If they earned on average $30,000 each that’s $44,289,000,000 of economic activity they never created.  And at a New York State tax rate of 11.7% that’s $5,181,813,000 in lost tax revenue for the state.

But it gets worse.  If you divide this number by two you get the total number of couples (a man and a woman) that could have started a family.  If each couple had 3 children this lost generation could have brought in another 2,214,450 taxpayers into New York City.  Adding them to their parent’s generation and assuming a median family income of $53,046 (an older generation established in their career earning more and a younger generation just starting their career earning less) brings the total lost economic activity for these two generations of possible New Yorkers to $195,779,524,500.  And lost tax revenue for the state of $22,906,204,367.  So the number of abortions is having a direct impact on the economy.  And tax revenue.  Making it necessary to cut guns to pay for more butter.  Whereas if these taxpayers were born we could have both our guns and butter.  And live in a world made safe by the most powerful military in the world.  Peace through strength.  The Ronald Reagan way.  And not a world where our enemies are constantly testing our resolve.  The Jimmy Carter and President Obama way.

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Abject Ignorance of things Economic is Destroying our Health Care System

Posted by PITHOCRATES - January 18th, 2014

Week in Review

The problem in America these days is the mass ignorance of the people.  Thanks to a public school system that does not educate but programs our children to be good Democrat voters.  Higher education taken over by the leftist radicals of the Sixties that forever changed the curriculum to teach our children to distrust capitalism and love government.  When controlled by Democrats, of course.  And people who are for some reason respected for their economic prowess who are absolutely clueless on things economic (see The Daily Show Nails Why Healthcare Will Never Work As A Free Market by Christina Sterbenz posted 1/18/2014 on Business Insider).

Steven Brill, author of Time’s in-depth healthcare analysis “Bitter Pill,” appeared on The Daily Show this week to discuss his opinion of Obamacare.

Brill’s work exploded his career into a love-hate relationship with Obamacare, now leading to a book. Speaking with Jon Stewart, Brill certainly made his criticisms known but we also feel like he pinpointed exactly why healthcare just can’t work as a free market.

Brill told the story of a cancer patient forced to pay $13,700 out-of-pocket, up-front for transfusion of a drug. And that cost only constituted part of a greater $83,000 payment. Brill claims, however, the drug only cost the pharmaceutical company $300.

Stewart came back at Brill with the typical, conservative argument — creating a free market for healthcare where patients pick-and-choose their coverage to create competition and therefore, better options.

“Everyone says, well it’s a marketplace. That guy [the cancer patient] has no choice in buying that drug. His doctor told him, ‘This will save your life. You don’t take it, you’re gonna die,'” Brill responded.

He further argued free markets must host two aspects — a balance between buyers and sellers and secondly, knowledge — neither of which the current U.S. system offers.

“That cancer drug has a patent. That is a monopoly that the government has given the drug company. There is no other drug. That’s the drug,” Brill said.

Jon Stewart is a comedian.  So one can almost forgive his ignorance.  But you’d think a person writing for a publication with the word ‘business’ in its name would actually understand business.  But the author hasn’t a clue.  It’s not her fault.  It’s because of the politicizing of our educational system.  As her dual degrees in journalism and public affairs would have taught her squat about the classical, Austrian or the Chicago school of economics.  Instead filling her head with Keynesian nonsense.  The one economic school embraced by power-hungry governments everywhere that has a proven track record of failure.  For it was Keynesian policies that gave us the Great Depression, the stagflation of the 1970s, the dot-com bubble and recession of the late 1990s/early 2000s and the Great Recession.  Where massive government spending did not pull the economy out of recession but only made things worse.

Why does this pharmaceutical company have a patent?  Or perhaps a better question would be why do we have this one cancer drug?  Why is it that this one pharmaceutical company developed a cancer drug that works that no other pharmaceutical company or government developed?  Because of that patent.  The only reason they poured hundreds of millions of dollars into research and development and paid massive liability insurance premiums for taking a huge risk to put a drug onto the market that may harm or kill people.  They do this on the CHANCE that they may develop at least one successful drug that will pay all of their past costs for this one drug, the costs for the countless drugs that failed AND a profit for their investors.  Who took a huge risk investing, giving this pharmaceutical company the money to pay all of their employees over the years it took to come up with at least one drug that wasn’t a loser.

Does the author of this article work for free?  No.  Of course not.  She has bills.  As we all do.  Even the people working at pharmaceutical companies.  Who don’t work there for free.  Even if the vast majority of their work produces nothing that their employer can sell their employer still pays them.  Thanks to their investors who give them the money to do so until they can actually sell something.  But their investors do this only because of the CHANCE that this pharmaceutical will develop that miracle drug that everyone wants.  A miracle drug that would never come into being if it weren’t for investors who were willing to risk losing huge amounts of money.  Something only rich investors can afford to do.

Health care worked as a free market before General Motors made it an employee benefit thanks to FDR’s ceiling on wages.  Once people stopped paying for what they received all free market forces left the health care system.  And costs began to rise.  This whole “healthcare just can’t work as a free market” is a product of the dumbing down of our educational system.  One that produces people who don’t know the difference between insurance and health care.  Insurance protects our assets against a catastrophic and UNEXPECTED loss.  Like when Lloyds of London started selling marine insurance at that coffee shop.  Every shipper paid a small premium to protect against a POTENTIAL sinking and loss of cargo.  A POTENTIAL financial loss.  Not every ship sank, though.  In fact, most ships did not.  Which is why that little bit from everyone was able to pay the financial loss of the few that did.  For the ships that didn’t sink the shippers paid every other cost they incurred to ship things across those perilous oceans.

This is how insurance works.  Which isn’t how our current health insurance works.  Where people don’t expect to pay for anything out-of-pocket.  Not the unexpected catastrophic costs.  Or the EXPECTED small costs that everyone can budget for in their personal lives.  Childhood vaccinations, annual checkups, flu shots, childbirth, etc.  Even the unexpected things that have a low cost.  Like the stitches required when a child falls off of a bike.  Things that would cost less than someone’s annual cellular costs.  Or things that people can plan and save for (like a house, a car or a child).  When we pay these things out-of-pocket there are market forces in play.  For a doctor is not going to charge someone they’ve been seeing for years as much as a faceless insurance company.  Even today some doctors will waive some fees to help some of their long-time patients during a time of financial hardship.  Because there is a relationship between doctor and patient.

When we pay out-of-pocket doctors can’t charge as much.  Because they need patients.  If they charge too much their patients may find another good doctor that charges a little less.  Perhaps a younger one trying to establish a practice.  These are market forces.  Just like there are everywhere else in the economy.  Even a cancer patient requiring an expensive wonder drug would contribute to market forces if there was true insurance in our health care system.  Cancer is an unexpected and catastrophic cost.  But not everyone gets cancer.  Everyone would pay a small fee to insure against a financial loss that can result from cancer.  Where that little bit from everyone was able to pay the financial loss of the unfortunate few that receive a cancer diagnosis.  Because only a few from a large pool would incur this financial loss insurers would compete against other insurers for this business.  Just like they do to insure houses.  And ships crossing perilous oceans.

Health care would work better in the free market.  It doesn’t today because government changed that.  Starting with FDR putting a ceiling on wages.  Which forced employers to offer generous benefits to get the best workers to work for them when they couldn’t offer them more pay.  This was the beginning.  Now the health insurance industry is so bastardized that it doesn’t even resemble insurance anymore.  It’s just a massive cost transfer from one group of people to another.  Instead of a pooling of money to insure against financial risk.  For the few unexpected and catastrophic costs we could not afford and budget for to pay out-of-pocket.

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Health Care is Expensive because the Government doesn’t pay their Bills in Full

Posted by PITHOCRATES - January 4th, 2014

Week in Review

Health care is expensive.  It’s why we have Obamacare.  To lower the cost of health care.  And give quality health care to everyone.  But why exactly is health care so costly?  And who’s to blame?  Well, let’s take a look at the cost of an appendectomy to get an idea (see Reddit User Posts $55,000 Hospital Bill for Appendectomy by SYDNEY LUPKIN, ABC News, posted 1/1/2014 on Yahoo! News).

When a 20-year-old man got over the pain of having his burst appendix removed in October, he got hit with a hospital bill he wasn’t expecting.

The bill from Sutter General Hospital in Sacramento, Calif., said the total charges were $55,029.31 but that the patient owed only $11,119.23 because his insurance had covered the rest.

Shocked, the patient took to Reddit to post the bill and vent his frustrations.

“I never truly understood how much health care in the U.S. costs until I got appendicitis in October,” he wrote on the social media site. “I’m a 20-year-old guy. Thought other people should see this to get a real idea of how much an unpreventable illness costs in the U.S…”

But the bill was not so unusual, given recent studies that showed how the cost of medical procedures could vary from hospital to hospital, said Timothy McBride, a professor and health policy analyst at Washington University in St. Louis….

Sutter General Hospital spokeswoman Nancy Turner said hospital billing is complicated, and that the hospital has people available to help patients navigate it. She said hospitals often serve many patients who don’t pay at all or don’t pay the actual cost of treatment because they are on Medicare or Medi-Cal, California’s version of Medicaid.

“Sutter Health agrees that an improved billing structure is needed, where published charges are more closely aligned with actual costs,” Turner said. “And a more straightforward pricing system is only possible when reimbursement from government-sponsored patients covers actual costs.”

How much did your television cost?  How much is your cable bill?  How much was your laptop?  Your tablet?  How much was your mobile device?  How much is your cable bill?  How much is your cellular bill?  People know these costs very well.  For they are very discerning shoppers.  And because they are manufacturers and providers bend over backwards to give their customers what they want at the lowest possible price.  This is free market capitalism at work.  Competition for our dollars makes businesses try to give us the highest quality at the lowest price.  But none of this happens in health care.  Because there are no free market forces in health care.

No one knows what their health care costs are.  Because they don’t pay the bill.  So they don’t know.  And they don’t care.  It’s so bad today that most couldn’t shop and pay for the own health care if they tried.  On the rare occasion they pay attention to their bill what do they do?  Blame the hospital for gouging on their bill.  But there is a reason they do this.  And it’s not because they’re greedy.  They do it because it’s the only way they can keep their doors open.  Thanks to the people who don’t pay their bills.  And the government who doesn’t pay all of their bills.  Leaving no choice for health care providers but to over-bill the insurance companies.  Who are the only people paying their bills in full and then some.

Obamacare will only make this worse.  By giving ‘free’ health care to more people.  Health care that the government won’t pay in full.  Which will force the health insurers to raise their premium prices further.  Until it is so expensive that no one will buy it anymore.  The so-called death spiral.  Opening the door for single-payer health care.  And Medicaid-quality health care for everyone.  Well, perhaps not quite Medicaid-quality health care.  With more people in the program wait times and rationing will be greater than they are currently in Medicaid.  So it will be worse than Medicaid.  The worse-quality health care currently available in the United States.

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Is the Road to National Health Care through Incompetence or Deviousness?

Posted by PITHOCRATES - December 19th, 2013

Politics 101

The American Left is always trying to Expand the Role of Government in our Lives

Hillary Clinton tried it.  When her husband was president.  Give us national health care.  But there was terrific blowback.  Because people didn’t want it.  For they were afraid it would take the best health care system in the world (it’s the United States the richest people in the world go to for their more serious health problems) and do, well, what Obamacare is doing to it now.

The American left is always trying to expand the role of government in our lives.  To make people more dependent on government.  Because once they are they will soon discover something very beneficial to the left.  They will learn that they need government.  And once they do they will keep voting for the party that promises to expand government ever more.

This is why the left so wants national health care.  For it makes people need government.  To stay alive.  And that pays big dividends at those annoying things that come around every 2 years that the left hates.  And thinks is beneath them.  Elections.

The Lesson the American Left learned from the Failure of Hillarycare was to Lie Better

Liberals are a bunch of elitists.  They think they are better and smarter than the rest of us.  Which is why they feel they have the right to tell us how to live our lives.  For in their eyes we’re just too stupid to know what’s best for us.  Much like the British nobles felt about their petulant North American colonists.  They’d have preferred we appreciated all that the Crown was doing for them.  Thank them.  And shut the hell up.  This is the mindset of the American left.

The British Crown did not like their American colonists questioning the established order of power.  Neither do liberals.  For they believe that they are a privileged class.  And should live under a different set of rules.  Like they continue to show us all the time as they implement Obamacare.  As they forced the majority of Americans to lose the health insurance, doctors and medicine they liked and wanted to keep waivers went out to those connected to the liberal ruling class.  And actual members of the ruling class.  Such as those Congressional staffers getting illegal subsidies for their gold-plated health care plans while ordinary Americans lost their bare-bones plans because the Affordable Care Act made them unaffordable.

Was this an unintended consequence of the Affordable Care Act?  Well, being that the promise that if you like your health insurance, doctors and medicine and wanted to keep them but now can’t as the year’s biggest lie, it makes one think.  If they lied why did they lie?  To do what was best for the American people?  Or was it because they learned a powerful lesson from the failure of Hillarycare?  That the people don’t want national health care.  So if that’s what you want you can’t tell the American people that.  No.  You lie to them.  Which is why President Obama and his fellow Democrats lied.  Because they knew the American people didn’t want the [deleted expletive] they were shoveling.

The American Left looks upon us with the same Contempt as the British Nobility looked upon the American Colonists

Originally the Affordable Care Act included a public option.  National health care for those who opted for national health care.  But this just didn’t pass the smell test.  For there were Democrats who had one of those nasty things they hated coming up.  An election.  And these Democrats knew that their constituents, though they voted Democrat, would not go for national health care in sheep’s clothing.  So they had to remove the public option from the bill.  For it was just too painfully obvious what their ultimate intentions were.  Which left them with Plan B.

People like their health insurance, doctors and medicine.  And you’re not going to usher in national health care when they have these things.  For they know that the VA and Medicaid (examples of national health care already in America) is second-class health care.  I mean, those rich people coming to the United States for their more serious health problems aren’t demanding to get into the VA or Medicaid programs.  So to get national health care you first have to destroy the private health insurance system.  And candidate Obama told the SEIU that it may take awhile (see The Fix Is In: From ObamaCare Set-Up To Single-Payer Solution by Larry Bell posted 11/26/2013 on Forbes).

“But I don’t think we’re going to be able to eliminate employer coverage immediately. There’s going to be potentially some transition process. I can envision a decade out or 15 years out or 20 years out…”

So is the disastrous rollout of the Affordable Care Act just incompetence?  Or is it part of a devious plan to get what they always wanted?  National health care?  By first destroying the private health insurance that gave people the health insurance, doctors and medicine they liked and wanted to keep?  If it’s incompetence that isn’t good for the American people.  For these same incompetent people will now be in charge of our health care.  With our lives literally hanging in the balance.  Or are they just devious?  Which also isn’t good for the American people.  For it means they look upon us with the same contempt as the British nobility looked upon the American colonists.  Who only cared about what was best for their privileged class.  And not the American people.

The problem the left has is one of timing.  Yes they hold the American people in contempt and believe they are privileged.  But because of elections they have to be careful about letting these truths out.  Because if they lose the Senate and don’t get the House back in the next election it could throw a wrench into their plans.  They need to destroy the private health insurance industry.  But doing so will make people hate them.  And vote against them.  So on the one hand they have to get people dependent on government as soon as possible.  To get them to need government.  But if they move too fast they may anger the people so much that they may lose in the upcoming thing a privileged class hates.  And thinks is beneath them.  An election.  Which may cause them to lose their power.  This is the dilemma the left faces in the rollout of Obamacare.  The degree to which they [deleted expletive] the American people.

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FT197: “Global warming insurance would probably sell as well as Obamacare.” —Old Pithy

Posted by PITHOCRATES - November 22nd, 2013

Fundamental Truth

The Scam of the Ponzi Scheme is that there is no Investment

A Ponzi scheme is a pyramid scheme.  An investment scam.  Here’s how it works.  Say three scammers build an investment fund that they promise will return an 18% return on investment.  A pretty good return these days.  If they have 100 investors who invest $25,000 each that brings in $2.5 million into the investment fund.  Now here’s where the scam comes in.

They pay each investor an 18% return each year.  So their $25,000 returns $4,500.  A return they can’t get anywhere else.  An investment just too good to be true.  Some take that $4,500 check and spend it on something special for themselves.  Others leave it in the fund.  While others beg to get into the fund.  Of course they wouldn’t do these things if they understood what happened to the $2.125 million that the fund didn’t pay out to investors.  That went into the pockets of the three scammers.

That’s the scam of the Ponzi scheme.  There is no investment.  The scammers collect the money people invest.  Put aside some money to pay out as a generous return on investment.  While keeping the rest.  These scammers sit on top of the pyramid.  And the more people that join the investment fund the wider the base of the pyramid gets.  Pouring more money into the scam.  Providing more money to pay out even higher returns on investments.  Getter ever more people begging to get into the fund.  While burying the scammers under an avalanche of cash.

Our Aging Population is sending the Health Insurance Industry into a Death Spiral

All Ponzi schemes share these characteristics.  And one other one.  They all fail.  And the scammers go to jail.  Why?  Simple.  The scam works as long as the base of the pyramid continues to grow greater than the top of the pyramid.  As the base grows larger the scammers spend more money, though.  Because there is more money to spend.  And spend they do.  Putting down deposits and paying on large mortgages and loans.  Buying very costly things that have a voracious appetite for cash.  So over time more money flows out at the top of the pyramid.  Which isn’t a problem until money stops flowing into the bottom of the pyramid.  Or begins to flow out.  Because people want to use their money for something else.  Like for a down payment on a house.  And once the money flowing out of the bottom of the pyramid exceeds the ‘return’ on investment the fund pays those high returns on investments shrink and disappear.  Exposing the scam.

This is what has happened to Social Security and Medicare.  Thanks to an aging population.  Women are having fewer babies than they did during the baby boom generation.  So today we have fewer taxpayers entering the workforce who pay the taxes that pay for Social Security and Medicare.  While the baby boomers are retiring and leaving the workforce.  And living longer into retirement.  Consuming far more money than they ever paid into these entitlement programs.  So there is far more money flowing out of the top of the pyramid than is flowing into the bottom.  Inverting the pyramid.  And putting these programs onto the path to bankruptcy.

Health insurance is little different.  It just covers so much these days that insurance premiums have soared to pay for this ever expanding coverage.  And the aging population just makes a horrible situation worse.  The elderly are living longer and consuming the lion’s share of health care services.  Further raising the cost of health insurance.  Making it unaffordable to many.  So people simply choose not to buy it in their youth when they are young and healthy.  And wait to buy it later in life when they need it.  Such as when they start raising a family.  At which time they’ll try to find employment somewhere that has good health insurance.  When they start consuming health care services.  Creating adverse selection.  Where only those who consume health care services buy health insurance.  While those who don’t consume health care services (i.e., the young and healthy) don’t.  Creating a death spiral.  As there are no non-consumers of health care services subsidizing the high cost of the large consumers of health care services.  So premiums rise.  To allow fewer people pay for more.  More people drop their insurance because they can no longer afford it.  Shrinking the insurance pool.  So premiums rise.  To allow fewer people pay for more.  More people drop their insurance because they can no longer afford it.  And so on until the cost of health insurance equals the cost of the health care services.  And the insurance market goes the way of every Ponzi scheme before it.

When Reality hits People in the Pocketbook they tend to Lose their Idealism

Enter the Affordable Care Act and the mandates.  Forcing the young and healthy to buy insurance they won’t use.  So they can use their premiums to pay for the old and sick.  The greatest generational theft in history.  Something the young and healthy see.  And don’t like.  For they are not running out and buying health insurance on the health exchanges.  In fact the majority of the people to enroll thus far are the high consumers of health care services.  Which is basically the opposite of the goal of Obamacare.  The young and healthy may have supported President Obama and the Affordable Care Act but that was only in generalities.  Yes, we should help those who don’t have insurance.  And, yes, we should do something to save the environment.  We should stop discriminating against the LGBT community and let them get married.  In the abstract these are all noble goals.  But when the reality hits their pocketbook then it’s no longer an abstract thing to feel good about.  Especially when they can’t get a job with their college education because they had the misfortune to enter the workforce during the worst economic recovery since that following the Great Depression.  The Obama recovery.

This is when youthful idealism turns into skepticism.  As reality settles in hard.  This isn’t raising taxes on the rich.  Something they won’t have to deal with until much later in their career.  This is in the here and now.  When they stop hearing inspiring words from the president about what we can do if only we implement his policies.  But only hear B.S. and lies.  For if they had that youthful idealism they would be rushing to the health exchanges to buy health insurance to make the world a better place.  But they’re not.  And this has the left worried.  Not just about trying to fix the broken Obamacare website.  But will this skepticism spread to other items on their liberal agenda?  Such as the fight against manmade global warming?  They still want their carbon tax.  And they’ve worked hard to get kids graduating from high school convinced that we’re destroying the planet and need to make polluters pay.  If the young lose their faith on Obamacare they may just stop fearing global warming to the point that they may start driving big SUVs again.

In the abstract the youth will support many things.  Until it starts hitting them in the pocketbook.  And if we make the fight against global warming hit them in the pocketbook they would quickly become indifferent about manmade global warming.  Even becoming manmade global warming skeptics.  Perhaps even noting that the glaciers once stretched down from the poles to near the equator.  And moved back towards the poles.  Before there was any manmade global warming.  Something that probably bothers them today but they’re not yet ready to question the left about manmade global warming.  But if we made them buy insurance to protect themselves from the ravishes of global warming they probably would.  The prognosticators can run off a list of calamities that will befall us from unchecked global warming.  So actuaries should be able to put a cost on that.  And set insurance premiums to cover the cost when the calamities of manmade global warming hit us.  Putting these premiums into a Save the Planet from Manmade Global Warming Trust Fund.  Just like the Social Security Trust Fund that has nothing in it but government IOUs.  Let the youth start paying a monthly premium to save us from manmade global warming and see how soon they become global warming deniers.  If we did this global warming insurance would probably sell as well as Obamacare.  Because when reality hits people in the pocketbook they tend to lose their idealism.  And this is the biggest fear the left has.  Because they count on that youthful idealism to win elections.  For once people lose their idealism they tend to vote Republican.

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Cash Piñatas and Obamacare

Posted by PITHOCRATES - October 28th, 2013

Economics 101

Health Insurance provides Financial Protection from Risk unlike Obamacare

A lot of people are talking about Obamacare.  The poor website launch.  People losing the insurance policies and doctors they liked and wanted to keep.  Higher insurance premiums.  And higher deductibles.  All of which conflicts with what President Obama had promised.

So there are problems.  And people are becoming less enamored with Obamacare now that it is personally touching their lives.  But there is a bigger problem.  Obamacare isn’t insurance.  And that’s what a lot of people don’t even understand.  Even some insurance agents.  Who may only see those higher premium prices and think Obamacare is a one-way ticket to easy street.  But if you understand insurance, economics and history you’ll see it’s not.  So what is insurance?  Here’s a definition from Investopedia:  

A contract (policy) in which an individual or entity receives financial protection or reimbursement against losses from an insurance company. The company pools clients’ risks to make payments more affordable for the insured.

The key word in this definition is ‘risk’.  Insurance provides financial protection from risk.  Obamacare doesn’t do that.  It forces people to pay for things they have no risk exposure to.  For example, an older couple with adult children still needs pediatric coverage on their policy.  Which just increases the cost of their insurance.  While providing no financial protection from this particular risk.  Sick children.

Premiums and Deductibles are Soaring to herd the Young and Healthy into the Government Exchanges

So why is Obamacare raising health insurance premiums?  To pay for people who don’t pay into the insurance pool.  The poor.  And the very sick who can’t afford health care let alone health insurance.  The higher premiums people are paying go to them.  This is a cost transfer.  From a higher income group to a lower income group.  Or in other words, a redistribution of wealth.  From those according to ability to those according to need.

So the president wasn’t exactly telling the truth about keeping your insurance and doctor if you wanted to.  This can’t happen under Obamacare.  Because to redistribute wealth you need to take it away from someone.  And guess who that someone must be to make Obamacare work?  The young and healthy who are buying health insurance.  Those people who pay into the insurance pool for financial protection from risk.  But who are generally healthy and receive no benefits from the insurance pool.  Who President Obama and the Democrats look at as cash piñatas.  Which they can’t whack open if they have private insurance policies.

This is why these people must lose the policies and doctors they like.  And why premiums and deductibles are soaring.  To herd these cash piñatas into the government exchanges.  Where the government can collect their insurance premiums.  And redistribute it.  While those high deductibles keep those premiums going out as benefits to the cash piñatas to a minimum.

The Young and Healthy choosing Medicaid over Obamacare

Of course, there is a flaw in this grand strategy.  Arrogance.  The government believing that young and healthy people will just stand there while the government whacks them open to get their cash.  Which they aren’t.  And it’s just not because the Obamacare website is a disaster.  It’s because a lot of these people are choosing Medicaid.  The health care program for the poor.

Medicaid enrollments are far outpacing Obamacare enrollments.  By a huge number.  Which is a big problem.  Because Medicaid enrollees don’t pay insurance premiums.  And they are not subject to deductibles.  Because they are poor and can’t afford to pay anything out of pocket.  So instead of adding to the insurance pool these cash piñatas will take from the pool.  And that won’t change when they fix the broken website.  Which is why it is a fatal flaw.

Compounding this problem is the President’s economic policies that have given us the worst economic recovery since that following the Great Depression.  Since President Obama assumed office his policies have forced approximately 10 million people from the labor force.  Unemployed, it is unlikely that they will be able to afford health insurance.  And probably will enroll in Medicaid, too.  If they haven’t already.  So Obamacare isn’t going to work as-is.  The question is, what will they do next?  Other than blame the greedy insurance companies?  Whose cooperation in this redistribution of wealth scheme will lead to their own demise.  For as more and more people can’t afford those expensive insurance policies they’ll either turn to Medicaid.  Or demand national health care.  Which people don’t need insurance companies to have.

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FT193: “Democrats are more unified than Republicans because they put their hatred of Republicans ahead of their policy differences.” —Old Pithy

Posted by PITHOCRATES - October 25th, 2013

Fundamental Truth

Democrats believe Republicans should be like a 1950s Housewife and be Pretty but Express no Thoughts of their Own

What did we learn from the government shutdown?  Well, if you listened to the left you learned that there is a civil war going on in the Republican Party.  And perhaps there is.  For there are two factions in the Republican Party.  Those the Democrats like and can push around.  And those who refuse to be their bitch.

The Tea Party would be in that latter category.  And the Democrats really hate them.  Because they won’t play ball.  Like the establishment Republicans.  Who argue with and debate the Democrats.  Put on a little kabuki theater to shut the constituents up back at home.  Then vote with the Democrats.  And thank the Democrats for the occasional spoils hand-me-down.

You see, the Democrats know how to be a good Republican.  You act like a 1950 housewife.  With Democrats, of course, being the 1950s husband.  Republicans are to look pretty and agree with the Democrats.  They’re not supposed to express a thought of their own.  The Democrats promise them all sorts of things.  To honor their agreements.  To be faithful.  Then go out and break their promises and whore around.  Because in their world Republicans are second-class citizens.  Just like the 1950s housewife.  At least as liberal Democrats see the 1950s housewife.

Extorting Everyone via Obamacare has more Political Dividends than Extorting only Seniors

Washington changes people.  Well, it changes Republicans.  Where power corrupts them.  While absolute power seduces Democrats.  Which is their ultimate goal.  Even when they campaigned for their first election.  They want power.  All the power they can get.  So they can become a ruling class.  An aristocracy.  Where they can do whatever they want.  And live the good life.  At the expense of the masses.  Like it used to be in feudal Europe.  Where who you knew was all that matter.  And a good last name set you up for life.

Power.  It’s all that counts.  And with power comes privilege.  The Democrats see themselves as a privileged elite.  Or at least they think they should be.  Which explains why working Americans have to pay high premiums and pay high deductibles for a basic Obamacare health insurance policy with no subsidies while members of Congress get a generous subsidy for their gold-plated policies even though they earn more than $100 grand a year.

In fact the Affordable Care Act is all about power.  Not health care.  Forcing people to turn to government for their health care makes all people dependent on government.  And much more willing to vote for Democrats who want to raise taxes and expand benefits rather than Republicans who want to ‘throw Grandma off the cliff’.  As the left accuses Republicans of wanting to do.  For it’s one thing extorting seniors.  But it’s another extorting everyone.  Which has far more political dividends than extorting only seniors.

Empowering the Ruling Class is the One Priority Democrats put above all Others

So you have the Democrats trying to make all Americans dependent on government so they can extort them whenever they want more.  If they want more money they threatened whatever the people are dependent on.  Saying if we don’t raise taxes the Republicans will prevent the Democrats from giving them these benefits.  With establishment Republicans onboard for the occasional spoils hand-me-down.  While the Tea Party Republicans are trying honor the promises they made to their constituents.

Was the attempt to defund Obamacare a wise move?  When the Republicans only controlled the House of Representatives?  Especially with the Republicans fighting among themselves?  Time will tell.  But what was clear is that the Democrats are more unified than the Republicans.  Why?  Is it because there is no dissension in the Democrats’ ranks?  Like there is with Republicans between establishment (i.e., Democrats in Republican clothes) and the Tea Party?  No.  It’s not that.  For there is dissension in the Democrat ranks.  But unlike the Republicans, they don’t let this interfere with their ultimate aim.  Power.

The Democrats never lose sight of the big picture.  The acquisition of power.  Democrat primary elections can be brutal.  In 2008 when Bill Clinton was trying to get Senator Ted Kennedy to endorse Hillary Clinton instead of Barack Obama he said, “A few years ago, this guy would have been carrying our bags.”  A racial slur.  But that was all forgotten after the election.  With Hillary Clinton even taking a post in the Obama administration.  Because empowering the ruling class is the one priority they put above all others.  And you do that by destroying the opposition.  The Republicans.  In particular the Tea Party Republicans.  Whatever the cost.  However it hurts the American people.  This is what unifies the Democrats.  Their love of power and their hatred of Republicans.  Which lets Democrats forget things like racial slurs.  While those Republicans who fight for the people get attacked by members of their own party.

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Obamacare and the Laws of Supply and Demand

Posted by PITHOCRATES - September 30th, 2013

Economics 101

A Scarce Thing has a Higher Price because Everyone that Wants One can’t Have One

Economics is the study of the use of scarce resources.  Scarce resources that have alternative uses.  For example, we can use corn for human food.  Animal feed.  We can make bourbon from it.  And we can even use it for fuel to power our cars.  So there are alternative uses for corn.

And corn is scarce.  There is not an unlimited supply of it.  During the drought the United States suffered in 2012 farmers brought in a greatly reduced corn harvest.  Which caused corn prices to rise.  Per the laws of supply and demand.  If demand remains relatively constant while the supply falls the price of corn rises.  Why?

Scarce things always have a higher price.  A painting by Vincent van Gogh has a very high price because each painting is a one of a kind.  And only one person can own it.  So those who want to own it bid against each other.  And the person who places the greatest value on the painting will get the painting.  Because they will pay more for it than anyone else.  Whereas no one would pay for a cartoon in a newspaper.  Because they are not scarce.  As they appear in every newspaper.  Newspapers we throw away or put in the recycling tub every week.  Something that would never happen with a Vincent van Gogh painting.

Price Controls fail because People won’t Change their Purchasing Habits when Buying Scarce Resources

Government spending exploded during the late Sixties and early Seventies.  Paid for with printed money.  A lot of it.  Igniting inflation.  Causing a great outflow of gold from the country.  And with inflation spiking prices soared.  Rising prices reduced the purchasing power of American paychecks.  Add in an oil shock and the people were reeling.  Demanding relief from the government.

With the price of gasoline going through the stratosphere President Nixon stepped in to fix that problem.  Or so he thought.  First he decoupled the dollar from gold.  So they could print more dollars.  Causing even more inflation.  And even higher prices.  Then to solve the high prices Nixon implemented price controls.  Setting a maximum price for gasoline.  Among other things.  Sounds nice.  Wouldn’t you like to see gas prices held down to a maximum price so it consumed less of your paycheck?  But there is only one problem when you do this.    People won’t change their purchasing habits when it comes to buying scarce resources.

Why is this a problem?  Because the oil shock caused a reduction in supply.  With the same amount of gas purchasing with a reduced supply the supply will run out.  Which is what happened.  Gas stations ran out of gas.  Which they addressed with gas rationing.  Which led to long gas lines at gas stations.  With people pushing their cars to the pump as they ran out of gas in line.

Obamacare will Fail because no matter how Good the Intentions you cannot Change the Laws of Supply and Demand

Obamacare is increasing the demand for health care.  By providing health care for millions who didn’t have health insurance before.  So demand is increasing while supply remains the same.  There is only one problem with this.  With more people consuming the supply of health care resources those health care resources will run out.  Leading to rationing.  And longer wait-times for health care resources.  Just like gasoline in the Seventies.

One of the stated goals of Obamacare was to lower health care costs.  But what happens when you increase demand while supply remains relatively constant?  Prices rise.  Because more people are bidding up the price of those scarce resources.  Obamacare may try to limit what doctors and hospitals can charge like they do in Medicare, but everything feeding into the health care industry will feel that demand.  And raise their prices.  Which will trickle down to the doctors and hospitals.  And if they can’t pass on those higher prices to whoever pays their bills they will have to cut costs.  Which means fewer doctors, fewer nurses, fewer technicians and fewer tests and procedures.  Which means rationing.  And longer wait-times for scarce health care resources.

President Obama may say he’s going to provide health care to more people while cutting health care costs but the laws of supply and demand say otherwise.  In fact the laws of supply and demand say Obamacare will do the exact opposite.  So whatever rosy picture they paint no one will be linking arms and singing Kumbaya.  Unless they like paying higher taxes, waiting longer and traveling farther to see a doctor.  Which is what is happening in the United Kingdom.  And in Canada.  Which is why Obamacare will fail. Because no matter how good the intentions you cannot change the laws of supply and demand.

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