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President Obama's Speech: Critical Question Continued

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In his speech last night president Obama asked a key question.

President Obama asked, “Where would America be if we had not passed Medicare and Medicaid?”

As I said in my post last night, “President Obama’s Critical Question,”  the president’s question should not have been be a feel-good throw-away line, as it is the underpinning of the base argument, that Medicare and Medicaid have been good for us as a people and for the country. Clearly, the president believes that the answer to these questions is in the affirmative. But, what if the answer is not?  These are areas that I think many need to analyze.
Those who have been reading my articles know that I have a strong concern that the underlying issues in our health care system and our economy are systemic and the areas we are focusing on are, in effect, addressing the symptoms of the problems – not the root causes.  In my upcoming book, “The History and Evolution of Health Care in America: The untold back-story of where we’ve been, where we are, and why health care needs more reform!” I look at the relationship between the rising costs of health care and trace in part one cause to the large expansion of government programs like Medicaid and Medicare.  I also found correlations between the rapid increase in the amount of currency we created, after we jettisoned the gold standard in 1972, and the disproportionate allocations of these new monies to health care and other government subsidized programs like housing.
The relationship of the Total Money Supply (M3) to our current economic issues I will cover in a later article, but for now look at the direct, almost point for point, correlation of the rise in the total health care spend in the U.S. and the increase in the money supply.  I think there is no doubt that the significant increase in the amount of currency in circulation and the rapid rise of health care costs run hand in hand.  It is very clear, as Sancho said to his master, Don Quixote de la Mancha,

“Whether the stone hit the pitcher or the pitcher hit the stone – it was going to be bad for the pitcher!”

In this case, we can argue later whether the increase in currency drove the increase in costs or the increase in costs drove the need to increase the currency, it was the expansion of Government programs like Medicaid and Medicare that drove the increase in costs.
Housing also rose in a point for point correlation as well.  Unlike with health care, you can see it was an advance indicator.  This make sense, according to economic theory and the basic premise of fractional reserve banking because our the engine of economic expansion (the creation of new money) is debt.  Most preferably mortgage debt.  If housing prices did not rise and new homes and the resultant mortgages did not happen then the banks would have become rapidly out of covenant if the new money existed before the new mortgages were there to leverage against.
Lastly in this article, I include a chart of a few other cost histories, lest we think that all parts of the economy had the same correlation to the increase in the money supply.  Clearly, wheat corn and eggs did not experience the same effect from the increase in the money supply – nor does it appear they led the need to increase the supply.  I believe that most peoples practical experience is that not all things have risen in value twenty times in the past forty years.  Herein is the potential rub!
I will continue the discussion related to the presidents key question in my next article.  In that I will focus on how the creation of Medicaid and Medicare changed our personal character related to our view of our personal responsibility for our health care and how this change has affected our fiscal habits and our purchasing patterns and trends.
Please feel free to comment on this article or send it to others.  As I have said many times this is not a republican nor democrat issue.  I think this is an American issue.  I am not an economist just someone trying to understand why these things are happening now.  We need pragmatic solutions not demagoguery so lets find out what is the truth and then how we can fix it!

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Tom Loker
Tom Loker

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