September 9, 2009

Obama Delivers Clear, Convincing Speech -- Outlines Sensible Goals

CSpan video here.
New York Times video here.

"Our predecessors understood that government could not, and should not, solve every problem. They understood that there are instances when the gains in security from government action are not worth the added constraints on our freedom. But they also understood that the danger of too much government is matched by the perils of too little..."

Text of speech from NYTimes here.

Outline of Obama's reform goals (Congress is vested with the power to create the health care reform law.)


Let me point out that no plan, nor any principle nor system will quickly fix all the difficulties in Health Care (though paying for outcomes would set us on a much better path).

For instance, one serious problem is that, unlike houses or stocks, the extra inflation in health care prices during the Credit Bubble doesn't quickly correct (disinflate) as the Credit Bubble deflates, due to insurance as the means of payment. I'm saying the degree of extra health care inflation during the Credit Bubble was large, not small. The combination of how health care is paid for along with easy credit together pushed health care inflation, leading to today's overwhelming prices (while some providers offer relative bargains, many get very high prices.)

This is no small problem. Without Government interference there would be massive, widespread bankruptcies of hospitals, doctors offices, and of course of many, many individual patients.

By intervening, the Government will reduce this Credit Bubble fallout, but will also then appear to be partly responsible for the difficulties that were always coming.

At worst, we could have Government as Bagholder.

Since few people study economics, a mass of Americans could blame Government for the effects of the collapsing Credit Bubble in Health Care, as they do for the other credit-collapse effects such as the costly effort to avert a generalized bank run in 2008, and the efforts to help the automakers.

While I'd guess a modest majority of Americans can genuinely understand the idea that house prices became inflated due to easy credit, and are now correcting back to more normal prices... many other Americans simply will never fully understand this as it does require at least some mathematical thinking.

Therefore, it would be helpful for the administration to point out explicitly that a significant part of health care inflation occurred because of the availability of very easy credit, so that current health care prices are higher than they would have been without easy credit.

This would increase understanding among 30-60% of Americans of just exactly where we are in health care -- at the end of a credit bubble of higher prices.

But...some sizable minority in the country will not truly understand anything involving such concepts as inflation through easy consumer credit.

Reforms and a very low rate of health care inflation for years could create a transistion back to a more normal price level (vs. incomes), as the current capacity of the health care system treats more patients, but this remains to be seen. Will reform encourage providers to treat more patients? (Note I say more patients, not more per patient.) It could.

I will write more on this and other fundamental issues that seem to be largely absent in the popular dialogue.

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