Miscalculating Medicare-for-all


A report from the Mercatus Center at George Mason University calculating the “cost” of Medicare-for-all has received much attention recently—first, because Bernie Sanders claimed the report concluded that Medicare-for-all would save the American people $2 trillion over a 10-year period. That claim was still warm when the report’s author, Charles Blahous, told the Washington Post that Bernie’s interpretation of the report’s conclusions were blatantly false. In fact, Blahous told the Post, he posited that savings scenario based on a set of assumptions which he subsequently proved were so highly unlikely as to be impossible.

The real conclusion of his report, Blahous said, was that Medicare-for-all will “raise government expenditures by $32.6 trillion” in the first decade—or, about $3.3 trillion per year. Blahous went on to say this: “For perspective on these figures, consider that doubling all currently projected federal individual and corporate income tax collections would be insufficient to finance the added federal costs of the plan.”

So, there you have it: blown out of the water again. When will Democrats understand they can’t collect enough tax-dollars to pay for Medicare-for-all, or to pay America’s public college tuitions, or to pay for pre-school day-care for America’s working-class families? When are Democrats going to get REAL? End of conversation.

Except it should not be the end of the conversation at all, but rather the beginning of a learning experience to help Americans get it right when it comes to understanding what U.S. democracy can “afford” to do. It turns out the arguments framed by Mr. Blahous are, themselves, based upon a particular assumption which is illogical from the perspective of macro-economic bookkeeping in a modern money system—which is what the U.S. has been operating now for over three-quarters of a century.

To see why this is so, begin with the simple statement that Medicare-for-all will increase federal expenditures by $3.3 trillion per year. The first thing to notice is that this number—$3.3 trillion—represents the total amount of health-care services someone has calculated that Americans are going to need. To digress for a moment, I realize that a large part of the controversy around health-care stems from the belief that Americans are paying for services they don’t require and are paying too much for the services they get. Arguments about how to pay for health-care, then, get entangled with arguments about how to reduce its cost—and the entanglement renders clear thinking and debate difficult. So, for the moment, let’s not even consider whether the $3.3 trillion figure is an overpayment—let’s just accept the fact that it is a number somebody calculated about how many services and procedures American’s will need, and how much each service and procedure is estimated to cost. That total guestimate represents what we could call America’s “health-dollars”—i.e. the dollars Americans are going to spend on health-care one way or another, assuming they get the services they’ve been projected to need.

Here’s the second thing to notice about this $3.3 trillion in health-dollars: If Uncle Sam didn’t write the checks for those health-services, someone else would have to. In aggregate, then, if Uncle Sam pays $3.3 trillion for America’s health-care services, America’s families and businesses save $3.3 trillion in expenditures they don’t have to pay—which could be viewed as the same as “earning” an extra $3.3 trillion each year.

From a macro-economic bookkeeping perspective, then, if the folks who “earned” $3.3 trillion (by not having to spend it) “transferred” their $3.3 trillion windfall to Uncle Sam, they would have, remaining, the same number of dollars as if they had bought the health services. And, if Uncle Sam then uses the $3.3 trillion gained through the “transfer” to buy the health services, the net result would be exactly the same as if the folks needing the health services had paid for them in the first place—i.e. the net bookkeeping result would show this: Uncle Sam would have zero health-care dollars, the health-care industry would have earned $3.3 trillion health-care dollars, and the American people would have received the services they needed.

So, what is the point of this exercise? Why does Uncle Sam have to be involved at all? Why not just have everyone pay directly for the health-care services they need since, from an aggregate bookkeeping calculation, the net results are the same?

The answer, obviously, is because while the aggregate bookkeeping calculation works, the details assumed in the aggregate accounting don’t. Specifically, the $3.3 trillion health-care dollars that are to be spent on America’s services and procedures are not equally distributed amongst the Americans who would need to do the spending. A small percentage of the citizens have a huge surplus of the health-care dollars, while a very large slice of the citizenry has virtually none.

In America, this situation poses a profound and conflicting problem. Our foundational core belief is that if a person earns a lot of money through hard work, creative ingenuity, clever dealings, or even sheer good luck, he or she should be able to keep it—or at least keep the vast portion of it after having paid reasonable “dues” (taxes) for the benefits of being an American citizen. The idea of being forced to “redistribute” a portion of what has been hard-earned to others who, for whatever reasons of misfortune, bad luck, or laziness, have not earned enough themselves, is anathema to the American psyche.

At the same time, however, when a human being is suffering or injured, American’s will, by instinct, send the ambulance and open the emergency room doors first—and wonder about payment afterwards. There is a recognition, then, that health-care dollars will get spent no matter what, in any event, either through the front door, or via the back door. There is also a recognition that the general health of the entire population is a collective good that cannot be allowed to falter: communicative diseases do not check the bank balances of their victims.

These conflicting values pose what seems an unsolvable dilemma for American politics. This dilemma causes us to undertake all kinds of subterfuges—like, for example, “health-insurance markets”—to make ourselves believe we are doing something which we are not—or not doing something which we are. And the dilemma is instigated by one key, core-value word: “redistribute.” Implicit in that word is the un-assailed assumption that for Uncle Sam to spend the “health-dollars” Medicare-for-all will require, the dollars will first have to be removed from the bank accounts of the wealthy through taxation. Hence, we have Mr. Blahous’ admonition that even if projected individual and corporate taxes were doubled, it would not generate enough tax-dollars to pay for the health services. It’s simple mathematics.

But why should this surprise us? The fact of the matter is, as it has evolved since the days of Alexander Hamilton, America’s money system has never used tax-dollars to pay for the big-ticket items Congress has deemed necessary for our collective good. To do so has never been a mathematical possibility (as Hamilton himself acknowledged in his 1790 Report Relative To A Provision For The Support Of Public Credit)—nor is it a mathematical possibility today—nor will it ever be a possibility in the future (as most recently pointed out by Mr. Blahous).

But this does not mean that America cannot afford to have big-ticket items for the common good—really Big-Ticket items, in fact. The reality is that America, as a collective society, can afford to buy anything for which the real resources—labor, materiel, human ingenuity—are both available and for sale in U.S. dollars. This is because big-ticket items for the collective good are paid for with new dollars created—as needed—by U.S. treasury operations. Specifically, the operations involve the issuing of U.S. treasury bonds (which are, in effect, dollar-denominated, interest-bearing savings accounts) and trading them for existing currency in the private sector.

We habitually imagine these treasury operations to be “borrowing”—and even tally them up as something we call the “national debt.” But modern analysis and explanation shows that in a sovereign money system the definition of “borrowing” does not apply to treasury operations; the securities created by the operations, themselves, are “money” issued—as needed—by the federal government. Thus, the U.S. government can (and does) pay for anything that Congress deems necessary or desirable—so long as it’s for sale in U.S. dollars—without collecting tax-dollars.

Regarding Medicare-for-all, then, the initial pertinent question is NOT whether we can raise enough taxes to cover $3.3 trillion in new expenditures (that question is not pertinent at all!)—the question is whether the medical services to be purchased are actually available in America. Do we have the doctors and nurses, the hospitals and clinics, necessary to provide the care and procedures? If so, and if Congress decides it is in the interest of the American people to have access to that care, the U.S. treasury can, through its securities operations in coordination with the Federal Reserve, create the “health-dollars” necessary to pay the bill.

We should still ask if the “price” charged for those services is fair—or if some of those services and procedures might be unnecessary for the best health outcomes for American citizens. These inquiries would also include Mr. Blahous’ concern that if health-care is “free” for people to access, they’ll naturally access more of it—which might drive the price up even higher than his calculated $3.3 trillion. But those questions should be part of an ongoing process to imagine and implement the most effective system the American health-industry can operate. They have nothing to do with how many tax-dollars can be collected from individuals or businesses.

The actual macro-economic bookkeeping for Medicare-for-all, then, is this:

  1. Uncle Sam spends $3.3 trillion to pay for America’s health services;
  2. S. families and businesses save $3.3 trillion by not having to spend it for their health-care;
  3. The health-care industry earns $3.3 trillion by providing services;
  4. The U.S. financial sector owns $3.3 trillion in treasury bond “savings accounts.”

That is a proper way to calculate what America’s social democracy can do.

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