woody_zimmerman_118_2007I read yesterday that President Obama said we were “on the precipice of a historic achievement” – by which he meant passage of a law that will bring all health-care delivery and insurance in the USA under federal control. Perhaps he spoke extemporaneously, as I doubt if he intended the ironic imagery of being “on the brink,” or “in a very hazardous situation,” which is what being “on a precipice” means. Or maybe it was a Freudian slip, whereby he compulsively disclosed the true nature of the “reform” monstrosity now being cobbled together in the United States Senate. No senator could possibly have read this 2000-page horse-choker, let alone comprehended it. Ditto for Mr. Obama. Nor did any senator personally write any part of it. This is all done by staff. Tawdry details are beyond the ken of our senatorial rulers.

Americans don’t realize it, but they will go to sleep tonight on what might be one of the last nights of the United States as we have known it. After the Reid bill passes and the president signs a bill reconciled with the already-passed House version, Americans will never again control their own medical treatment or be able to choose how to pay for it. These decisions will be taken out of their hands and placed under control of an immense new bureaucracy, which the Reid and Pelosi bills specify. The Pelosi bill creates over 100 new boards, commissions and programs. The Reid bill is much the same.

Not one of these new government entities furnishes care for a single patient. Their staffs are bureaucrats, whose pay and benefits the American taxpayer will pick up via increased taxes, fees, and funds diverted from current programs. The story that the reform is “revenue-neutral” – consistently repeated by President Obama and his cabinet secretaries and “czars” – is a convenient fiction created by Democrats who hope to snooker enough Americans long enough to get some bill – any bill – passed before the end of this year. In truth, many of the revenue-raising provisions specified will prove unpalatable to those required to pay them. This will certainly lead to their repeal or weakening during the election-year of 2010.

The result will be a gigantic underfunded turkey that adds a fresh load to the mountain of national debt that is already stinking up the place. Cost-estimates range from $1 trillion to $3 trillion over a 10-year span, although even the legislation’s supporters concede that such estimates tend to be wildly optimistic. There is simply no way to estimate accurately the cost of a new socio-financial system that takes control of 1/6th of the country’s economy in so transformative a way. Add in the fact that a trillion dollars is an incomprehensible amount to the average citizen – i.e., spending a million dollars every day for over 2700 years – and you have legislation that neither the public nor its representatives can grasp.

One of the greatest fictions – elevated almost to the level of Holy Writ by designers of government mega-systems – is the fiction of fiscal “non-reaction” by affected parties. This is also called “static” estimating. In simple terms, it means assuming that individuals or enterprises affected by a new law will not change their behavior from previous patterns after the law is instituted. Of course, the premise is demonstrably false, as people notoriously act in their own interests. (Go figure.)

Most of the popular fictions of this type were exposed long ago, but fictions are stubborn things. They tend to hang around like the odor from the suitcase of a kid home from summer camp. One of these is the idea that changing capital gains tax-rates will produce more revenue from cap-gains taxes in direct proportion to the rise in the rates – e.g., that increasing the rate by 30% will produce 30% more in revenue. In fact, significantly increased tax rates on cap-gains nearly always fail to produce more revenue – indeed, often produce less – because many investors will not sell if they think the tax is too high. Conversely, lowered rates usually produce more revenue because investors choose to sell when taxes are lower. Estimators generally ignore elective behavior.

Senator Obama tacitly recognized this phenomenon during his campaign for the presidency, when he argued for increased cap-gains taxes, claiming it was “fair” for (presumably high-income) investors to pay more – even if the higher rates did not necessarily produce more federal revenue. That exchange, during a televised interview, furnished rare exposure of the liberal mindset on taxes. Mr. Obama is smarter than the average bear, and he certainly knew the truth, but he didn’t want to hear it. Just so, legislators and their bean-counters hang onto the static model of individual behavior.

This theory heavily influences Congressional Budget Office fiscal “scorings” of the health-care/insurance reform bills drawn up in both the House and Senate. There have been few attempts to evaluate either fiscal responses or social responses by both patients and medical-care workers under the new legislation. Part of the reason for this dearth of evaluation has been the lack of definition in the bill, which has essentially been a moving target. Almost any evaluation of this type is bound to be invalid because the bill will have changed by the time the analysis is completed.

Nevertheless, some analysts and commentators have attempted to show that significantly constricting payments for medical treatment – which Mr. Obama and legislators have lavishly promised – might cause medical practitioners of various types to leave the field. Such developments are very hard to predict because individuals’ personal situations are so varied. Nor would the legislation’s designers gladly hear that their cost-restrictions might create shortages of doctors or medical technicians. Thus, the static model remains the premise-of-choice for legislators. This will produce many surprises when the bill is actually implemented. One imagines legislative sponsors being shocked at some of them.

What is unarguably true is that the details – bloody or otherwise – of the health-care reform bill are far less important to Democrats than passage of a bill which authorizes the federal government to control all medical transactions in the USA. Much time has been spent getting enough representatives and senators “on board” by adding or dropping controversial provisions like the “public option,” inclusion of illegal aliens under the new system, covering abortions, or expanding Medicare to people younger than 65. However, all of these issues stray from the main point – perhaps deliberately.

The central issue in the entire debate over federalized health care – studiously ignored by the Mainstream Media, but relentlessly hammered by a few news-entertainers like Glen Beck and Rush Limbaugh – is the question of whether the Constitution empowers the federal government to take over an entire segment of our economy in this way. Indeed, Constitutional questions are far out on the fringe. Some of our public officials cannot believe that such questions would even be asked.

When a reporter asked House Speaker Nancy Pelosi if a federal takeover of health care and insurance would violate the Constitution’s Tenth Amendment, the clearly astonished Speaker responded, “Are you serious?” On receiving the reporter’s assurance that he was, Madame Speaker sadly shook her head and moved on to another question. She obviously considered the questioner borderline-daft. This is where we are on the Constitution.

My distinct impression is that many of the people who voted for Mr. Obama’s “change” because they thought it would be free – at least to them – will be first shocked, and then depressed, by what that change ends up costing them. Young people, in particular – who welcomed Obama with open arms – will eventually learn the dirty secret of Democrats’ health-care reform: that young people are the ones who are expected to pay for it.

A child could tell you that it will cost big bucks to add tens of millions of people to the insurance rolls. Young people will be tapped for that money. Many of them do without health insurance because they are healthy and don’t need it. If they can be forced to buy insurance, their premiums will fund others’ treatment. It will be another inter-generational transfer of wealth – perhaps the largest ever. It will be interesting to see how Obama’s young voters react to the reality of this “change.”

Middle class folks who are, according to polls, overwhelmingly satisfied with their current health care and insurance – as high as 80% in some polls – will also get a “5 o’clock surprise” when their insurance premiums go up instead of down (as Mr. Obama promised). This will certainly be the effect produced by the sleeper issue in the reform bills – i.e., mandatory coverage of pre-existing conditions.

Most insurance companies won’t cover pre-existing conditions for a period of time after someone signs up, but the new law will prohibit that. The natural consequence will be that some will wait until they are sick to buy insurance – like waiting until you have an accident before buying car insurance, if that were permitted. Obviously, all premiums will have to be raised to compensate for this added cost.

If I may venture a look into my crystal ball, I would say that the natural response of a Democrat-controlled Congress will be to add legislative “corrections” of some of these nettlesome effects of their landmark bill. No doubt a law will be passed to arrest premium increases – thus putting more insurance companies at financial risk. And perhaps more young people will qualify to receive government assistance for their health insurance, if enough of them complain about this new mandate. Any taxes on “Cadillac” insurance plans – often enjoyed by labor union members – will soon resemble Swiss cheese, once Congress gets seriously into the “exemptions” game.

It doesn’t take clairvoyance to see that Congress will occupy itself with such “repairs” during the next year to ease the backlash from their passage of legislation that the public manifestly does not want or support. A calendar year is a long time – both in dog-years and politics – and savvy Democrats evidently calculate that they can perform damage control for the next year and still get re-elected. Meanwhile, Mr. Obama will bask in the glow of having achieved his signature issue during his first year in office. This is the view of the world through Democrat lenses. Perhaps it is the correct view.

On balance, though, I think not. In the end, I believe Democrats will fall victim to their own penchant for “static” estimating – on both the macro-economic scale and the individual scale. Their health-care reform bill contains significant new taxes that will cripple small business and retard our economic recovery. These businesses will not hire the new workers that would ease the country’s disastrously high unemployment rate.

As the nascent economic recovery stalls and the country’s misery level increases, frustrated voters will strike back with the only meaningful weapon they possess – their ballots. There will be a great reckoning, as Democrats come to see exactly what Mr. Obama’s “historic” reform has wrought. His use of the term “precipice” will be fully vindicated – perhaps more than he anticipated – when his party crashes over one of the most politically obtuse initiatives in history.

Democrats’ house of spending and unlimited benefits is built entirely on sand. The Bible speaks of such a house, saying that its fall, when it came, “was great.”