White collar workers having problems getting jobs

Charles Smith over at Of Two Minds Blog does a book review of Bait And Switch: The (Futile) Pursuit of the American Dream by Barbara Ehrenreich. One of the the conclusions in her book is that we need a national health care system.

The issue is bigger than just the white collar workers that she focuses on in her book. One of the reasons that the commerce clause was put in the Constitution was to create a uniform national economy free of local barriers to trade.

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U.S. Constitution, Article I, Section 8 clause [3]

To regulate commerce with foreign nations, and among the several States, and with the Indian tribes;

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One thing that should be patently obvious to anyone who knows anything about macroeconomics: that when workers cannot leave one job and take another that is more suited to their abilities because they would lose their healthcare benefits it will cause a loss of productivity and efficiency. This is also true if they cannot have portability of their retirement benefits. That is one of the tremendous advantages of Social Security. No matter where you work, your Social Security goes with you. The same should be true for your health care and retirement benefits that you have earned. A national health care system would make workers more portable. That is even more critical at a time when economic forces are rapidly changing.

Even though American workers are more productive than ever, many manufacturing jobs are going overseas (or to Canada). One of the main complaints by businesses is the cost of health care. A national system would spread the risk and cost so that it could be controlled through the economy of scale.

Think of it this way: let's say that a single person gets injured with a broken bone. The cost of their hospitalization / treatment comes to $10,000.00. If they have to pay the entire cost themselves, the cost is pretty great (unless they are wealthy). Let's say they go to a church which has 100 members. Let's further assume that ever church member shares equally in the cost of their health care. The cost to each member of the church comes to $100 each -- not too bad. Now lets assume that every American of working age helps pitch in to cover the cost (250 million Americans / $10,000). That comes to $0.00004 each. Now I realize that when you get to that many potential claimants, that there will be more injuries and illnesses. However, the principle is still the same. The economy of scale brings down the cost to each individual overall.

This same principle also applies to Medicare if we allow our government, who buys prescription drugs for Medicare recipients. The economy of scale will bring down the cost of the precription drugs if we allow it to.

We can bring down business costs by creating portability in health care and retirement so that the worker can maximize their efficiency and productivity. This is the win-win-win situation that we have sought: increased profits with increased productivity for the business owner, while increasing the security and portability of the American worker.

Atul Gawande: Curing the System

From the New York Times editorial page:

There are two causes of human fallibility — ignorance and ineptitude — and health system change is at risk of both. We could err from ignorance, because we have never done anything remotely as ambitious as changing out a system that now involves 16 percent of our economy and every one of our lives. And we could err from ineptitude, underestimating the difficulties of even the most mundane tasks after reform — like handling all the confused phone calls from those whose coverage has changed; ensuring that doctor’s appointments and prescriptions don’t fall through; avoiding disastrous cost overruns.

Health systems are nearly as complex as the body itself. They involve hospital care, mental health care, doctor visits, medications, ambulances, and everything else required to keep people alive and healthy. Experts have offered half a dozen more rational ways to finance all this than the wretched one we have. But we cannot change everything at once without causing harm. So we dawdle.

Gawande then suggests two possible public policy initiatives: a Massachusetts-type plan or cover every child starting right now for their lifetime.

Personally, I think each fail -- but for different reasons:

First, a state-by-state plan fails because it fails to take into consideration that people move all the time for jobs. The market needs portability of labor to where it is most beneficial. You won't have that if some workers won't move due to loss of health coverage and we don't want to create first-class and second-class states (rich states that can afford health care and poor ones that cannot). The founding fathers felt it necessary to create a national economy. Health care needs to be uniform throughout the country. This is not an issue of technology, this is an issue of money.

Secondly, the problem of only providing health benefits for children might be more politically palatable, but, on the whole, the real cost of health care is not the young and healthy -- it is the old, sick and frail. Dr. Gawande said he wrote his piece "as I sit with my 11-year-old son waiting for an M.R.I. to check the cardiac repair that has saved his life for a decade." So I can see how helping children is personal to him.

But it isn't just the 11-year sons that are suffering because of our lack of health care coverage, it is all of us. It is the millions of Americans who have filed for bankruptcy over the last 10 years because of their unique health care story. And, ultimately, we all pay for it one way or another: health care costs will rise on everyone else anyway due to the ones who cannot pay. But -- and this is an important point -- creating a national funding system that guarantees payment is far more efficient, fair and humane than the patchwork system that we have now. No more denying of coverage due to "pre-existing conditions" or because a patient goes "out-of-network." The fact is that DNA science is teaching us that we are all born with a "pre-existing condition." And, being an American citizen and seeing a licensed doctor should automatically make you "in network."

The health of our country requires a national health care system.

Social Security as a National Pension System

Charles Smith of the Of Two Minds Blog posted part of an email that I sent him concerning my idea of converting Social Security into a national pension system:

Social Security is / was meant to be a supplement to a pension. I think that Social Security could be converted into a pension system if we ended the Social Security and Medicare taxes limitation to the first $120K of income. Then we could fund a full pension and national health care system. The payroll taxes could be reduced for all workers since more would be contributing. The payroll tax is one which wage earners pay. I have never had anyone explain to me why the wage earner under $120K should bear so much of the financial tax burden.

Higher income workers could get a guaranteed pension up to a certain amount set by law, based on their pay during their lifetimes. To make the conservatives happy, you could even allow a percentage (based on age) to be invested in a index fund. As a worker gets older less and less should be invested in stocks and more toward bonds. Management fees could be set by statute and reduced due to the economy of scale.

I want to put my idea into context.

First, Charles has been blogging about the threat that many municipalities, with their pension obligations, will file Chapter 9 bankruptcy. Chapter 9 is very rare. Most of the time, Chapter 11 is used. Here is an article discussing Municipality bankruptcy with the traditional Chapter 11 (large debtor or corporate reorganization).

The reason I am "thinking outside the box" and proposing to convert Social Security into a full pension system is that I am not sure we can afford to leave so many workers without access to retirement and health care. Conservatives have argued and still argue that it is (should be) the worker's own responsibility to save and invest for retirement. I believe this fails on three fronts:

1. The workers were contractually promised a pension so that they did not have to worry about it;

2. Much of the lack of pensions were based on fraudulently taking money from the workers (Enron, et al) or investing in highly speculative and excessively risky investments, much of which was based on fraud as well (ex: appraisal fraud in housing appreciation, which led to controllers suggesting investing pension funds in REITs for higher returns, but as housing depreciates...). I should also note that some of the pension investments in credit swaps and derivatives are above my head, but writers such as Mike Shedlock indicate they may be a bad deal for cities in many cases;

3. Even many educated workers do not understand financial instruments and can easily be duped by financial advisors who will sell them financial "plans" which are not in their best interest. I have seen this in my own life. I would rather not elaborate on this here, but suffice it to say that I have seen elderly people get put into highly risky investments that garnered high fees for the financial advisor, but was completely unwarranted for the elderly person who needed safe returns. This same problem holds true for non-elderly people as well.

The conservatives that I have argued with would say "caveat emptor" (let the buyer beware). In the past, we moved away from such a rule as it was discovered that there were many forms of dishonesty that were sprung on an unsuspecting buyer/consumer. As a result, the courts started putting more responsibility on the seller due to the fact that the seller was in a better position to understand what the consumer was getting into and prevent any harm (example: product liability). The problem with financial torts/crimes is that by the time the tort/fraud is discovered, it is too late to correct the problem because the wrongdoer is long gone or the statute of limitations to sue/prosecute has run.

It is for this reason that I feel that all workers should be guaranteed a pension that is suitable to live out their twilight years in relative comfort. There is enough pain and suffering in this world from disease and brittle bones in our old age. After someone has contributed a lifetime of productivity they deserve some security in their financial planning.

The same holds true for health care; while a large percentage of medical costs are spent on the elderly, I don't see this as "unfair." We will all grow old. We will all die. The least we can do is alleviate some of the suffering that comes before the end of our lives.

I think the best way to deal with these two problems is to put it in the hands of someone who does not have a financial conflict of interest with the worker or patient. Another advantage to a national pension system is that there would be less risk for the worker. A national pension system would be backed by the Full Faith and Credit of the U.S. Government.

I have come to this conclusion after seeing so many people cheated out of their hard-earned money. I just don't think private financial institutions and corporations can be trusted enough with the worker's pension funds to allow the private system to continue. Even where the wrongdoing is discovered and where there is a legal theory to recover, many times (Enron, et al) the assets have been destroyed, cannot be found (in overseas banks), or can be found, but are in overseas banks and in trusts which are sometimes beyond the power of the U.S. courts to force back.

The theory has always been that the worker receives a safer guarantee and that the owner of the business has a greater return due to his putting his capital at risk. But now all of the risk is being thrust upon the worker while the corporate owner continues to receive the return. A national pension and health care system would return some balance to the free market.

***Update***

I should add that corporate taxes should be levied to cover what the contribution would have been to any worker's pension plan. That way, even if the corporation goes bankrupt or just simply goes out of business, then the worker would still be able to collect his retirement. This would also allow a worker who changes jobs or careers to take his retirement with him (the principle of portability).