National Health Service

The government is again talking about fixing our health system. I am glad. I hope they really fix it this time. In the meantime, I thought I would share my thoughts on the subject.

I am a capitalist. I believe in the free market, and using market incentives to optimize social systems. But with healthcare, I don’t believe that this works. People do not shop around for price when they are sick. When in the hospital, you take the pill they hand you; you don’t ask how much it costs. Even when people do shop around, they almost always look for the best doctor, not the best cost. So providers have the incentive to be the best, regardless of the cost.

Right now the only companies really making a lot of money at healthcare are the drug companies. They are making some pretty extraordinary drugs, and while the patents hold out, they make good money at it. But there is no incentive to cure disease, only treat it. What are the big new drugs? Drugs for Aids, mental health, allergies, and ED are the big drugs. They all treat disease. The best thing a drug company can do to maximize its profits is to develop a pill that will treat a common disease with one pill a day for life. If you cure your customer, they don’t need you any more.

So what is the solution? Public health care, socialized medicine, call it what you like. Everybody needs healthcare. Not just those who work. Not just those who work for large generous companies. People often need healthcare more when they are not working than when they are.

Are there downsides? You bet! Public healthcare is just like any other public service run by the government. There are politics and inefficiency and bureaucracy. Think IRS, DMV, or the department of public works. But the school system, the military, and first responders (fire, police, etc.) are public too. Still, in spite of likely lines, and long waits, and mixed quality, I believe it is far better to provide adequate medical care to everyone than good care to just a few. And I believe government doctors are better deciders of who should get care than insurance companies, lawyers, and luck.

Executive Pay

There is the issue of executive pay. And then there is the issue of companies taking government money, and then giving employees, executives, and shareholders excessive compensation. I have no problem with successful, thriving companies paying executives as much as they want. I have no problem with companies paying employees salary, bonuses, and other compensation. But if a company is taking charity from Uncle Sam, if they are only in business because of a government bailout, they have given up the right to manage their company.

We have bailed out companies because in the best judgement of our leaders, they are vital to the nation and the nation’s economy. And if not for the government, the company would close. O. K. fine. We need the company. So we bail it out. But it is a slap in the face to the taxpayer when that company then pays its employees, shareholders, and executives large bonuses, dividends, salaries, or other compensation.

The focus of the outrage has been on the executives. Good, but it is not enough. This new paymaster, or whatever his title is, should not be looking at the compensation of the top executives. He should look at the expenses of the entire company. He should look at cutting any unnecessary spending. And there should be no incentive to go get a big government bailout. On the contrary, there should be a penalty.

Totally Taxing Bad Bonuses

Giving bonus to employees of failing corporations is wrong. If it were not for our government keeping the companies in business, the employees would not even be drawing a salary. This is exactly the kind of thing that proponents of non-intervention fear: that by keeping failing companies in business, we are perpetuating bad business practices. In this they are right.

Should the government rescue failing business that are likely to bring down scores of other businesses if they fail? Should bankruptcy be the safety net for insolvent financial institutions, or should the federal government step in and save them? Good questions, but let’s put these aside for now.

Bonuses should never be given to reward bad behavior. AIG and others have been doing just this. The very people who sold the policies that are bringing the company down, are the ones being rewarded.

One could argue that the bonuses are really just part of an employee’s compensation, like salary. I don’t buy it. The very term bonus means something in addition.

One could argue that in AIG’s case, bonuses are contractually obligated. Perhaps management cannot void the contract, but Congress can. It took an act of Congress to keep AIG afloat, and an act of Congress can nullify those contracts just as quickly.

Congress seems to be doing a good thing: tax those bad bonuses into oblivion. Make a law that says this is not O.K. But they are not going far enough. They are taxing 90% of bonus over $200,000 issued by companies receiving at least 5 billion dollars in bailout money (per the bill that just passed the house).

Five billion! That is a lot of money. But what if a company only received, say a five million dollar bailout? That is more money than most people make in a lifetime. Companies who receive bailout money are in danger of failing without it. Otherwise, why did they need to get bailed out? Bonuses from any company being bailed out should be taxed, not just companies receiving at least $5,000,000,000.

And how did they decide only bonuses over $200,000? So a failing company gets taxpayer money just to stay in business, and it is ok if they give out $10,000 bonuses? $1,000 bonuses? To the employees who got them into that mess? To employees who would be taking unemployment otherwise?

Any company who receives bailout money should not be giving out bonuses, period. You get one dollar in bailout money, and your employees should get no bonuses, and shareholders should get no dividend. And if companies want to give out bonuses anyway, the government can and should take the whole bonus in tax.