A couple of months ago, it looked like America was going to choose Socialism. Like the Soviet Union and Venezuela, we would have seen jobs (continue to) stagnate, inflation rise, cronyism and corruption become the only way to become wealthy, and government in every aspect of our lives. MSNBC was writing the obituary of the Republican party, and deservedly so, given the pitiful performance we saw the last time Republicans were in control of the White House.
Instead, Republicans have gained almost unprecedented control. Not only do they control both houses of Congress and the White House, but the Governorships and legislatures of 25 states. They now have the power to get most legislation that they want through and create or do away with all sorts of regulations. They have gotten here by campaigning against an ever-expanding government, increased government control of virtually every aspect of the economy, and large amounts of government debt. The question now is, will the Republicans actually do what they promised and replace government control with free enterprise and free markets, or is it all just talk and they’ll continue to use regulation and tax policies to enrich their friends as they’ve done in the past?
The last Republican President that we had who truly believed in the free market was President Reagan, and like President-Elect Trump, those in the Republican establishment hated him. But President Reagan understood how government policies, in particular tax policies, affected the economy. As he explained, as a high earning individual paying the highest tax rates on the last dollars of his income, there was a strong incentive for him to limit how many movies he made a year. With progressive tax rates very high beyond a certain level of earnings, the second, third, and forth movies he made in a year would result in much less of a payday than the first one. Since he was getting so little, relatively, there was a strong incentive for him to sit at the pool rather than get up and go into the studio, or travel somewhere in live in a trailer for several months, after he had made the first movie or two and had enough income to take care of his needs.
But movies don’t just make money for the stars. There is a whole movie crew, caterers, set-builders, hotel workers, gas station attendants, restaurant workers, theater workers, and theater supplier network that benefits by more movies being made. If Ronald Reagan just sat home rather than make more movies, there would be less work for these individuals. Most of these people were not the wealthy, but the working class and those just starting in the economy.
So President Reagan cut the tax rates in the middle of a dismal recession, ignoring the cries that he would destroy government revenues and hurt the economy. The terms, “trickle-down economics” and “Reaganomics,” were coined to mock the President and his policies. What followed was an economic expansion that continued for 19 years until the higher tax rates imposed by Presidents George H.W. Bush and Bill Clinton brought the expansion to an end. Instead of falling, government revenues actually grew with the economy.
Today, as government has taken control of the healthcare markets, we’ve seen premiums prices and deductibles soar. More distressing, we’ve seen provider networks shrink and many doctors leave the market. For the first time in modern American history we’re seeing people having difficulty getting the care they need because there are no providers that take their insurance near them and waiting times are growing to see the few that remain. Imagine needing a heart surgery immediately and being told that it will be a month or two before you can get into the operating room!
The answers to America’s healthcare costs are simple and based upon free-enterprise principles. Require everyone to save some of their money so that they’ll be able to pay for their own basic care out-of-pocket. This will cut costs for everyone who is paying since they won’t need to pay for others’ medical care and since the costs for billing by the doctor’s office will be less. Require everyone to get a major medical insurance policy so that they’ll be covered should a major health event occur. Require doctors post their true, no-kidding prices in a way that would allow smart phone apps and websites to direct patients to the low-cost providers in their area. This will eliminate the inefficient market that currently exists that causes aspirin to cost $10 each at a hospital or the same procedure to be $5000 at one clinic and $700 across town at another. Get patients to care about the costs they are paying. Get healthcare providers to compete for patients so they are motivated to improve quality and/or make their practices efficient. Expand the deductibility of charitable giving to hospitals and clinics that treat those who cannot pay so those who would otherwise fall through the cracks could be covered.
You’ll notice above that I am suggesting the government require people to do things like save for healthcare and buy major medical insurance, which is not a free enterprise principle. As with auto insurance, there are a lot of irresponsible people who will not save for healthcare or buy major medical insurance unless they are required to do so, so I do believe there is a government role to ensure people do the responsible thing. This protects both them and society from the burden they will impose when they are not responsible. True free-enterprise would be to allow those who don’t save to go without healthcare as a motivator to be responsible, but obviously that is not a choice in a compassionate society since there would always be some individuals who would get caught, so the requirement to at least save and buy insurance for major events, while not dictating how that money is saved and having competition among insurance providers, will strike a good balance that protects both society and individual freedom.
Please contact me via email@example.com or leave a comment.
Follow me on Twitter to get news about new articles and find out what I’m investing in. @SmallIvy_SI
Disclaimer: This blog is not meant to give financial planning or tax advice. It gives general information on investment strategy, picking stocks, and generally managing money to build wealth. It is not a solicitation to buy or sell stocks or any security. Financial planning advice should be sought from a certified financial planner, which the author is not. Tax advice should be sought from a CPA. All investments involve risk and the reader as urged to consider risks carefully and seek the advice of experts if needed before investing.