Should Small Businesses Pay For Health Care?

Here’s an interesting article in the Washington Post. I’m not sure I agree that Medical Insurers should be applauded for growing their profits 400%+ over the past few years but the fact remains that business profitability remains the core of a strongth economy. In fact, the only way we can get out of this current economy mess is through incentivising small businesses. Until they’re encouraged to grow and prosper, the economic engine will not kick-start. Unfortunately, it seems that Obama is only interested pork stimulus that only seem to stimulate one part of the economy at the expense of another (read the we buy ugly houses post) .  But I digress.  We definitely do need a public health plan but taxing small business owners to get it doesn’t seem right. But check out the article and form your own opinions.

Profits We Should Cheer
By Stephen L. Carter
Thursday, July 30, 2009

A specter is haunting America: the specter of profit. We have become fearful that somewhere, somehow, an evil corporation has found a way to make lots of money.
Flash back three years. In 2006, Exxon Mobil announced the highest profit in the history of American corporate enterprise. Politicians and pundits stumbled over each other to call for an investigation and for some sort of confiscatory tax on the money the company earned. Profit, it seemed, was an evil, but large profit was even worse.
Today, the debate on the overhaul of the health-care system sparks a shiver of deja vu. The leitmotif of the conversation about the coming shape of health insurance is that the villain is the system of private insurance. “For-profit” firms come under constant attack from activists and members of Congress.

Thus, a recent news release from the AFL-CIO began with this evidently alarming fact: “Profits at 10 of the country’s largest publicly traded health insurance companies rose 428 percent from 2000 to 2007.” Even had the figures been correct — they weren’t — we are seeing the same circus. Profit is the enemy. America could be made pure, if only profit could be purged.

This attitude was wrong in 2006. It is wrong now. High profits are excellent news. When corporate earnings reach record levels, we should be celebrating. The only way a firm can make money is to sell people what they want at a price they are willing to pay. If a firm makes lots of money, lots of people are getting what they want.
To the country, profit is a benefit. Record profit means record taxes paid. But put that aside. When profits are high, firms are able to reinvest, expand and hire. And profits accrue to the benefit of those who own stocks: overwhelmingly, pension funds and mutual funds. In other words, high corporate profits today signal better retirements tomorrow.

Another reason to celebrate profit is the incentive it creates. When profits can be made, entrepreneurs provide more of needed goods and services. Consider an example common to the first-year contracts course in every law school: Suppose that the state of Quinnipiac suffers a devastating hurricane. Power is out over thousands of square miles. An entrepreneur from another state, seeing the problem, buys a few dozen portable generators at $500 each, rents a truck and drives them to Quinnipiac, where he posts them for sale at $2,000 each — a 300 percent markup.

Based on recent experience, it is likely the media will respond with fury and the attorney general of Quinnipiac will open an investigation into price-gouging. The result? When the next hurricane arrives, the entrepreneur will stay put, and three dozen homeowners who were willing to pay for power will not have it. There will be fewer portable generators in Quinnipiac than there would have been if the seller were left alone.

When political anger over profit reduces the willingness of investors to take risks, the nation suffers. According to news reports, one reason the Obama administration has had so much trouble finding buyers for the toxic assets it hopes to remove from financial institutions’ balance sheets is a concern by financiers that should they go along with the plan and make rather than lose money, they will be hauled before Congress to explain themselves.
And although it is easy to be dismayed by excess, trying to regulate profit makes things worse. Capital flows to places where returns are highest. The more exercised our political leaders become when profits rise, the more investment capital will remain abroad.

The search for profit has dangers. There are few legal ways to enhance profits other than cost-cutting, improving efficiency or innovating. This can lead to wondrous inventions — the iPod, say — but it can also create serious dislocations, as when companies close plants and lay off workers. Remedying those human costs is part of what most of us want government to do. What we must avoid, however, is making the remedy so severe that profitability becomes impossible.

Consider the bills in Congress that seek to limit the freedom of federally aided automakers to close dealerships or to build the cars that buyers want. Preserving local jobs and building greener cars are admirable objectives, but a firm that is forced to sacrifice profitability to attain them is unlikely to be competitive over the long haul. Indeed, one reason the “public option” health insurance program under debate may turn out to be more expensive than advocates suggest is that here, unlike in Europe, we are unlikely to put up with government restrictions on what sorts of care will be available, especially for seniors. A board of experts might decide to limit access to hip replacements, for instance, but there is little chance Congress will let them get away with it.

Private insurers, by contrast, will cut whatever they can. This puts them at constant war with regulators and patients, but beneath this tension is a certain useful discipline. We want health care to be cheaper, and the for-profit health-care industry has every incentive to make it so. Supporters of the public option tout Medicare’s cost advantages over private insurance, but those are largely obtained by setting below-market reimbursement rates for medical services (meaning that private patients subsidize Medicare patients). Moreover, the costs of compliance with the hundreds of pages of Medicare regulations are also transferred to the providers, and thus, again, to private patients.

I have no problem with a system in which private patients subsidize public patients. I do not even mind calling it a tax. Those who have good jobs should be helping out, and carping about it is uncharitable, especially now. But an expanded public option will be possible only if the for-profit sector remains vibrant and strong — and profitable. Thus, we should all await, with grateful anticipation, the day when American firms again begin to earn the highest profits in history.

Stephen L. Carter, a Yale law professor, is most recently the author of “Jericho’s Fall.”

Funny Sarah Palin Song

Regular readers of my blog know I’m a big fan of Ron Paul and was disappointed (though not surprised) to see he didn’t make the cut for Presidential Candidate. I am however horrified that someone who graduated near the bottom of his college class  chose an even dumber running mate. At least George Bush chose a smart running mate to counter his senility! Especially given McCain’s advanced age, the fact that Sarah Palin could actually become President is downright scary!

While you can form your opinions regarding the next President, check out this funny video/song:

While I’m no Democrat, I’d rather have a Harvard graduate running the country than a beauty pagent winner/runner-up. On another note, it’s pretty sad that Palin’s son has Down’s Syndrome. But why a pregnant 43 year woman didn’t get a prenatal test for Down Syndrome is pretty strange considering that she had a 1/35 chance [source]. (She probably wouldn’t have aborted even if she had previously known about, so I guess it’s an irrelevant question).

Byron Wien’s 2008 Annual Top Ten Surprizes List

Byron Wien, chief investment strategist for Pequot Capital, has once again published his annual list of economic, market and political surprises. Last year, he got about half of his predictions right. He predicted gold bullion at $800, oil at $80, surging grain prices, and the rise in Latin America’s economies.

Wien believes that his ten surprises have at least a 50% chance of success in 2008. Although not a very high probability, they still make for interesting reading. Here’s his list for 2008, courtesy of

  1. In spite of Federal Reserve easing, and other policy measures, the United States economy suffers its first recession since 2001 as housing starts stay soft and banks are reluctant to lend to anyone where a whiff of risk is apparent. Federal funds drop below 3%. The unemployment rate moves definitively above 5% and consumer spending is lackluster.
  2. I think this is highly likely to come true. I’ve been saying there’s a chance of recession for a while, so maybe I’m biased, but I think there’s a 90% likelihood of this prediction coming true.

  3. Standard and Poor’s 500 earnings decline year-over-year and the index drops another 10%. Energy and materials stocks hold up relatively well in what is viewed as a correction rather than a bear market. Market conditions start to improve during the summer.
  4. Again, I agree with most of this. If the economy does go into recession, S&P500 stocks will see their earnings shrink. I’m heavily weighted in energy and commodity and I think they’ll do well. Don’t know about the summer prediction though. I thought the market usually went through summer doldrums as everyone goes on vacation! Maybe due to the weak dollar, inflationary climate and recession people might not go on vacations this summer!!!!

  5. The dollar strengthens in the first half reaching US$1.35 against the euro and weakens in the second exceeding US$1.50. The European Central Bank begins an accommodative monetary policy. Foreign investors flock in to buy cheap assets in the US early in the year but the dollar declines later as several countries holding large reserves diversify into other assets.
  6. Not sure if the dollar will strengthen that much, but at the end of the year, I’m definitely expecting it to be weaker than it is today. It seems that me that most countries are in a race to weaken their currencies and so-far the US is “winning”. I think that foreign investors and sovereign wealth funds will definitely start to pick up US assets as their currencies become stronger. Not that its necessarily a wise thing to do, but it’ll probably happen anyway.

  7. Inflation rises above 5% on the Consumer Price Index as higher commodity prices and oil finally begin to have an impact in spite of modest wage increases. The 10-year US Treasury yield rises to 5%. Stagflation becomes a frequent presidential campaign and Op-Ed discussion topic.
  8. I agree with the inflation part. I think that the 10 year US Treasury yield will drop a little bit. Its currently at 3.9%. I think it’ll go to 3% rather than 5%. Stagflation is definitely on the cards.

  9. The price of oil goes down early in the year and up later, sinking to US$80 a barrel in the first half as western economies slow and inventories are drawn down, and rising to US$115 in the second. Established wells continue to decline in production while China, India and the Middle East increase their consumption.
  10. Very likely scenario. That’s why I’ve been buying Canroys on dips.

  11. Agricultural commodities remain strong. Corn rises to US$6 a bushel and cotton to US$0.85 a pound. Gold reaches US$1,000 an ounce as disillusionment with paper currencies spreads across Asia.
  12. Bush’s great ethanol idea will cause Corn prices spike. As more crops are replaced to plant Corn, they’ll start rising too. Since corn is used as animal-feed, milk prices might also increase along with meat prices. I definitely agree with Gold rising further. I’ve been bullish since it was $505/oz and I think it’ll eventually exceed $3,000/oz.

  13. The recession in the United States slows the Chinese economy modestly but its stock market declines sharply. Investors recognize that paying biotechnology stock multiples for highly cyclical companies doesn’t make sense. The Chinese revalue the renminbi by another 10% to control inflation and as a gesture to foreign governments participating in the Olympic Games who complain that Chinese terms of trade are unfair. Several long distance runners refuse to compete in certain Olympic events because of continuing air pollution problems.
  14. The Chinese market correcting definitely sounds plausible. Not too sure about the Olympic runners though. I think the Chinese Government will ban all polluting vehicles and industries 2 months before the games!!! Heck, they might even enforce a ban on cooking!

  15. The new Russian President Dmitry Medvedev, under the tutelage of Vladimir Putin, becomes more assertive in world affairs. He insists that Russian oil and gas be paid for in rubles and demands a Russian seat at major world conferences. Russia and Brazil stock markets lead the BRICs. The Gulf Cooperation Council markets begin to attract interest among emerging market investors.
  16. The Petro-Rubble? Well, why not? Seems like the smart thing to do!

  17. Infrastructure improvement becomes an important election theme for both parties and construction and engineering stocks rally in anticipation of huge programs beginning after the new President’s inauguration. Water becomes a critical problem world-wide and desalination stocks soar.
  18. After the bridge that collapsed in Mississippi, I hope infrastructure development does become more important. Water is probably the next “oil”.

  19. Barack Obama becomes the 44th President in a landslide victory over Mitt Romney. With conditions in Iraq improving, the weak economy becomes the determining issue in voters’ minds. They want to make sure that gridlock ends and Congress gets something done for a change. The Democrats end up with 60 Senate seats and a clear majority in the House of Representatives.
  20. I hope not! I’m keen on Ron Paul winning.

Politicians Ruin Local Economy

Casinos were indefinitely closed in Atlantic City today, until politicians can decide how to fill a $4.5 billion budget deficit. Basically thousands of people are going to be out of work and many small businesses will suffer. Of course, the casinos are estimating a daily loss of around $20 million and the state loses around $1.3 million in lost taxes per day!!!

What better way to solve a budget deficit? Just close down the town and drive the tourists out!