The title to this post is the title (sans the question mark) of a Common Dreams article dated March 25, 2020.[i] Similar claims have become a regular feature of leftist commentary on the pandemic. For many decades, a primary goal of leftists is for America to replace its healthcare system with a universal healthcare system. They were quite disappointed when Obamacare turned out not to be a universal healthcare system of their dreams but hoped that it could be used as a stepping stone to Medicare for All (‘MFA”). Trump pretty much dashed those hopes. Now they are attempting to exploit the COVID-19 pandemic to convince Americans that MFA would be better than America’s more capitalistic healthcare system. I hate to give them any tips, but it would help if they came up with some logical arguments to make their case.
I’ve regularly asked people who claim MFA would be better than America’s system to explain what the pandemic has to do with their claim. I’ve yet to get a credible explanation (most seem to think berating me or ridiculing the question is an explanation). I am compiling evidence that I believe will demonstrate the reverse of Common Dreams’ claim. I expect to publish that analysis soon. In the meantime, let’s sort out some other things that are wrong with Common Dreams’ claim.
Shockingly absent from the Common Dreams article and similar articles that I have read is a sound argument that MFA would work better against pandemics than the existing system. Their “arguments” typically boil down to something like this: “The U.S. was unprepared, slow off the blocks, and somewhere between ham-handed and idiotic in its decisions and responses.”
While those things are largely true, those things were also true of all countries (with possible, but unverifiable exception of China[ii]). On the other hand, American doctors, unlike Italy’s universal healthcare doctors, have not experienced this: “There are now simply too many patients for each one of them to receive adequate care. Doctors and nurses are unable to tend to everybody.” More generally, pointing out the shortcomings of America’s healthcare system is not proof that MFA would be better. For the COVID episode to prove that the pandemic proves that America’s system should be replaced with MFA, one must at least provide some solid evidence that MFA systems have performed better against the pandemic. Let’s explore what the Common Dream article did instead of offering such proof.
Common Dreams’s claim was not based on evidence. It was based on predictions that have since proved to be false. For example, the article says:
“…the U.K.’s National Health Service is well-positioned to cope. It has a clear and comprehensive emergency planning structure with the ability to optimize resource use, even after years of government budget cuts.”
Only a few days later, The Guardian published an article entitled, “A public inquiry into the UK’s coronavirus response would find a litany of failures.” That article reported, “During the last decade, funding for public health has been fragmented and downgraded.” It went on to list a long series of shortcomings of the system. (As is typical of MSM, The Guardian placed much of the blame on government incompetence and that the socialized healthcare system was not socialized enough—with no appreciation of the irony of the claim.)
Common Dreams then moved on to cite unverifiable evidence from totalitarian China as if it were true. Fail.
It also cited S. Korea’s relative success in battling the virus. So far it appears S. Korea is doing relatively well (good for them). However, among other things, South Korea (1) had a different history (e.g., SARS),[iii] (2) used a different pattern of containment strategies than most Western democracies (that worked comparatively better—possibly by luck), (3) had IT and infrastructure to trace infected people that few, if any, other countries had, and (4) has a culture, government, and other characteristics that are very different from those of Western countries. To base sweeping claims on one data point (S. Korea) is weak at best. To pick one healthcare system that happens (for who knows what all reasons) to be the best the world (some country had to be that) concerning one incident is not science, it’s cherrypicking. It is certainly no proof that MFA would work better in America than its existing system.
Having exhausted her imagination as to why Coronavirus might prove America needs MFA with such weak arguments, the author of the Common Dreams article moves on to something completely irrelevant to her argument for MFA. To wit, MFA would be cheaper. The issue of which system costs more has nothing to do with which system can best handle pandemics.
In short, the article titled “Coronavirus Proves It: We Need Medicare For All” proves nothing.
UPDATE: “CORONAVIRUS & SOCIALIZED MEDICINE: Why Healthcare in the UK, Italy is FAR Worse than America” provides some great additional observations.
[ii] China’s reported data will never be verifiable: See “Chinese scientists destroyed proof of virus in December” and “Where it all began: Wuhan’s virus ground-zero ‘wet market’ hides in plain sight.”
Author’s Note: Dr. Birx, Dr. Fouci, and others continually talk about “the data,” its importance, and what they have learned from it. I know too little about epidemiology to offer commentary concerning what is discoverable from sound data concerning COVID-19. I do have some largely unreported reasons not to believe “the data” upon which the country is relying is as sound as some would have us believe.
The data depicted above is from John Hopkins’s much-referenced COVID-19 Map. The information is chocked full of misleading information. Let’s sort out a few of the big ones.
The most prominent number on the map is “Total Confirmed,” the total number confirmed COVID-19 infections worldwide. The fact that the “Total Confirmed” number is reported at all, much less touted, implies that it is valuable information about how contagious/dangerous the virus is. Not so fast! The number is far less informative than it is cracked up to be and it is being misused[i]:
- First and foremost, “Total Confirmed” is flawed and is insignificant (more on that below) compared to an overwhelmingly more meaningful number, i.e., a number that might be labeled “Total Infected.” That is the only number that can reveal the danger posed by COVID-19. That epidemiologists are looking to “Total Confirmed” for answers reminds me of the old adage about an economist looking for his lost keys under a streetlamp. When asked if he lost his keys near the lamp, he said, “no.” When asked why he was looking under the lamp for the keys, he answered, “because this is where the light is.” Epidemiologists do not have access to the number that sheds enough light on COVID-19 to fully assess its danger. Without knowing how many or what kind of people have been infected with COVID-19, their only option is to grope around in dim light for compromised data. That data is a distant second best.[ii] [If you are interested in what can and should be done about this problem, I highly recommend the endnote ii video.]
- Another critically important number ignored by “Total Confirmed” is the number or percentage of people exposed to the virus who do not contract the disease. Not everyone exposed to the virus becomes infected.[iii] Consider these examples:
- President Trump has attended multiple meetings with people who soon after tested positive for COVID-19.[iv] Yet all of the several tests he has taken since reveal that he is not infected.
- Many, perhaps most, doctors, nurses, and assistants who are exposed to the virus every day have tested negative.[v] For example, if only 10% of the people exposed to the virus get infected, social distancing, much less universal stay-at-home orders would be a cruel hoax. I suspect that the contagion rate is higher than 10% but much lower than 100%, which is the impression that the COVID-19 Map might leave in the minds of the unwary.
Consequently, the “Total Confirmed” number omits many, perhaps a majority of infected people. In terms of the more relevant (but unreported) number of severe illness and death per person infected, the “Total Confirmed” number is seriously flawed and misleading. It leaves the impression that COVID-19 is much more dangerous than it is.
- The object of the “Total Confirmed” number is to inform as to how dangerous/scary COVID-19 is, i.e., how alarmed people should be. Let’s look at some of the ways “Total Confirmed” overstates the danger of COVID-19.
- Many people (some say a majority[vi]) infected with COVID-19 experience no effects. Whether they represent the majority of COVID-19 “victims” or not, they can be a huge number. Omitting large cohorts of the population in question unscientifically skews the results. In this case, the skewing overstates how scary/dangerous the virus is.
- People experiencing flu-like symptoms disproportionately seek tests and get “confirmed.” On average, the sample of people tested is unrepresentative of the COVID-19 infected population, i.e., they are sicker than the average infected person. Unrepresentative data is of limited value for analysis purposes but also skews the results toward scariness.
- In light of the above, the “Total Confirmed” number is necessarily smaller than the total number of people infected. No one can know how small a fraction “Total Confirmed” is of Total Infected.[vii] Comparing “Total Confirmed” to the number of severely ill or deaths (almost all of which are counted), the COVID-19 Map and the COVID-19 DATA Pack overstates the scariness of COVID-19—bigly.
- Even the “Total Confirmed” number is not nearly as scary as people appear to believe it to be.
- 81% of the confirmed COVID-19 cases are “mild.”[viii] Some are so mild, especially in children,[ix] that the symptoms are hardly noticeable, while others are indistinguishable from colds or the flu. So, the odds of an infected person (counting both confirmed and unconfirmed) having serious problems is substantially less than the 20% of “Confirmed Cases” the COVID-19 Map reports. Based on some reporting,[x] it is likely less than 10% of all COVID cases. Deaths per infected person could be much less than 2% of people infected.
- With its “New ICD code introduced for COVID-19 deaths,” the CDC is causing physicians to overstate the number of COVID-19 deaths. The code requires, “COVID-19 should be reported on the death certificate for all decedents where the disease caused or is assumed to have caused or contributed to death.” [Emphasis Added.] Rules that err in favor of what appears to be a desired, scarier attribution overstate the danger.
- Compilations of incomparable data are always of limited use. COVID-19 data from one country, state, or city has limited applicability to other countries, states, or cities. Here are some illustrative examples:
- COVID-19 first visited New York City and Seattle at approximately the same time. The population density of NYC is 3.4 times greater than in Seattle (and 7.3 times greater than Houston).[xi]5% of NYC residents use public transit, while only 20.1% do int Seattle (Houston doesn’t make the top 50 list that includes cities with only 7.8% ridership).[xii] NYC has 282 skyscraper buildings (massive clusters of people in confined spaces), while Seattle has 21.[xiii] Based on these characteristics, New Jersey, just across a river and connected by subways, should experience contagion rates more similar to New York than Seattle. These observations are born out by this data chart Dr. Brix presented.
- A person’s genetics can have a big impact on susceptibility and reactions to viruses. The genetics of populations vary by country.[xiv]
- The prevalence of certain preexisting conditions of an area has a significant bearing on the impact of the pandemic. The prevalence of relevant preexisting health conditions and combinations of preexisting conditions in each country or state are not measurable during the outbreak. The relative relevance of all the combinations of preexisting conditions when exposed to a new virus is determinable only after the virus’s pandemic is in the past, if ever.
- The quality and quantity of testing by the listed counties vary widely from country to country. When testing began relative to when the virus entered the counties varied significantly, e.g., the U.S. got off to a slow start. How testing progressed varied by country, e.g., slow starting America now outpaces most, if not all, other countries.[xv]
- Cultural differences likely play a role as to how a population will respond to advisories or orders, e.g., stay at home orders. Determining what cultural characteristics are relevant would be a challenge, would not be consistent from country to country, and probably cannot be measured in real-time anywhere, much less everywhere.
- As noted above, different jurisdictions will classify the causes of deaths and define “mild,” “severe,” and “critical” conditions inconsistently.
- Hopefully, few cities will have to suffer the consequences of the bad advice that New York City officials gave to New Yorkers.[xvi] For sure, edicts from officials will vary.
- According to reports, U.S. Intelligence has confirmed that China misrepresented the extent of its COVID outbreak.[xvii] China is a big part of the COVID-19 story, and the numbers its population adds to the analysis could substantially alter conclusions and recommendations.[xviii]
This list could go on indefinitely. Hopefully, this list is sufficient to convince you that “the data” upon which the country is relying to make monumental decisions about the extent to which and for how long the economy should be stifled is not all that it is cracked up to be. [See also, “Dr. Fauci Follies.”]
[v] “KCUS tested 48 samples, seven positive, doctors test negative.” [Google appears to be deep-sixing this kind of information. How this article slipped through Google’s filters is a mystery to me.]
[xiv] See endnote ix.
“Fauci says that all states should have stay-at-home orders” blared The Hills’ headline today.[i]
A Washington Post article offers a Dr. Fauci quote, “I don’t understand why that’s not happening. If you look at what’s going on in this country, I just don’t understand why we’re not doing that. We really should be.”
One should not expect an epidemiologist to understand why some states have not issued stay-at-home-orders. Neither should one rely an expert’s recommendations on matters (1) outside the field of the expert’s expertise, or (2) about which he admits he doesn’t understand why it is happening. Let’s sort out some details about this.
Dr. Fauci has exceptional expertise in a particular field. Relying on experts concerning matters within their competence can be helpful, but even then, only with caution. A reason for caution is that human nature produces something called “The Law of the Instrument.” Abraham Kaplan illustrated this law thus: “Give a small boy a hammer, and he will find that everything he encounters needs pounding.” Another illustration is that when a person goes to a surgeon about knee pain, the likelihood that the doctor will recommend surgery will be higher than had she gone to a physical therapist.
Another aspect of human nature is in play with Dr. Fauci’s befuddlement. As an epidemiologist, Dr. Fauci should focus on the means to mitigate the havoc the virus is wreaking on people and the healthcare system. His expertise, credibility, and focus are both his raison d’etre and why the President enlisted him. It should come as no surprise that his hammer is quarantine (or as close to quarantine as can be achieved). As he has admitted, however, his focus has blinded him to enough of the negative consequences of the stay-at-home orders that he “doesn’t understand.”
Moreover, wielding the quarantine hammer pounds things about which he has no expertise and for which he will not be held accountable. Consequently, he is swinging the hammer with reckless abandon. Dr. Fauci can safely ignore the tears of the lady who runs the local dry cleaners whose clientele and hours have fallen by 75%—and she is one of the lucky ones who still have a job (but surely not for long if the country keeps it stay-at-home orders in place too long.) Dr. Fauci will not be held accountable for the heart attacks, increased obesity, and other ailments due to stress, or suicides from the financial insecurity and collapse the stay-at-home orders are inflicting on people. No one will blame him in the future for all the miracle drugs that were not invented because the country wasn’t wealthy enough to fund the extra research needed to find the essential component. Worse, epidemiologists have incentives to exaggerate both the severity of the pandemic and the scope of his recommendations.
I am not claiming Dr. Fauci has succumbed to his human nature or overdoing his advice. The extent to which he has is unknowable by anyone, including himself. I’m suggesting it is likely that he has to some unknowable degree and it is best to assume such when deciding when and how to impose or lift stay-at-home orders.
Saving lives, which Dr. Fauci is undoubtedly helping to do, is tremendously valuable and laudable. Saving lives, however, is not infinitely valuable or laudable. Causing more harm than good by saving too many lives is blameworthy.
We all know this. The EPA could set benzene and arsenic standards for drinking water so stringently that no one would die from those chemicals being in drinking water. The EPA doesn’t do that. EPA knows that some people will die due to permitted levels of those chemicals being in drinking water. The same is true of most, if not all, EPA standards. The reason the regulations are not more stringent is that the cost per life saved would be ungodly high (instead of the exceedingly high cost of complying with the current rules). Almost all of the mayhem of auto accidents (including the loss of 35-40 thousand lives in the U.S. annually) could be avoided by banning left-hand turns and lowering the speed limit to 20 mph everywhere. No state, much less country, has adopted those simple, sure-fired measures to save many lives—nor should they. In addition to the inconvenience and inefficiencies of driving that slowly and the money that would be required to facilitate banning left turns, the tremendously higher cost of food and other goods and services would significantly lower everyone’s standard of living. This is because the multiple billions of dollars it would take to eliminate those deaths would generate more significant benefits if spent in other ways.
As I’ve discussed elsewhere,[ii] sapping the vigor from our economy will have massive adverse effects on the mental and physical health of most Americans and will kill many. The more stay-at-home orders hammer the economy, the more negative the consequences will be. At some level of economic slowdown, the weakening of the economy will kill more people than the pandemic ever could. Mostly everything Dr. Fauci says takes the country closer to, if not farther beyond that point. Even this, however, does not mean that Dr. Fauci should hold his punches in advising the President. The President and governors need the best input from epidemiologists they can get.
So, what’s the problem? The left, particularly the MSM, are misleading Americans to believe that Dr. Fauci’s advice should trump any counsel that differs from Dr. Fauci’s. Regardless of their motivations,[iii] adopting the “In Fauci We Trust” motto will result in an unbalanced, ill-considered, and net-negative approach to addressing the pandemic. Health concerns will play a disproportionate role in setting the balance between saving life and health in the short run and avoiding a collapse of the economy, which will save lives, health, and a better standard of living for everyone in America and the world in the long run.
[ii] “The health of the country’s population is directly connected to the health of the country’s economy. A poor economy leads to greater joblessness, despair, homelessness, mental illness, drug and alcohol addiction and abuse, drug crimes, including gang wars, child and spousal abuse, etc., all of which cause collateral physical and mental illnesses. In short, contrary to the impression left by the reporters’ question/indictments, healthcare and the economy are not diametrically oppositional issues.”
[iii] Much of this lunacy is motivated by combinations of politics, pursuing power, envy, hate of Trump, putting America in its place (bringing it to its knees), and revenge. The bad ideas underlying each of these motivations prevent the country from reaching consensus on a good policy.
This gem appeared on my Facebook timeline this morning. It is a testament to the depth of Bernie Sanders’s supporters’ misunderstandings.
The fact that Sanders wants an education, health care, good jobs, and good pay for everyone distinguishes him from virtually no one. Wanting those things does not make him the bad guy. Everyone who does not want those things for everyone is a bad guy.
A problem with the list of wants is that it is too constrained. In addition to the things listed, all good people would want everyone to be happy, in good health, knowledgeable, and wise as well. Good and knowledgeable people know that no government has a magic wand that can wave all of those things into existence. Learned and wise people know that pursuing an impossible dream would be a waste of resources that could have been used to do good. Activist people who do not understand that and people who do understand that but can profit from the fact that most people do not realize that are called “socialists.” Those in the latter group are not only bad, but they are also evil. (Bernie strikes me as smart enough to know that his proposals are not in the best interest of the American people. I cannot tell if he is wise enough to see that the demise of America is not in the best interest of the world.[i] A case can be made that one who seeks power over a people in order to lead those people to their demise exhibits the essence of evil.)
So, Bernie is not a bad buy because he wants the listed things for Americans. He is a bad guy for his (1) self-righteous, and self-serving skills at persuading people to believe (or validating people’s errant beliefs) that socialism is a viable economic system for the U.S. (unlike all the other more socialist countries in the world, the U.S. has no sugar daddy for their daily inventions, defense, funds for pet projects, high-price customers for medical and other research and development companies, and many other goodies upon which it can rely), (2) fanning the self-defeating flames of envy, resentment, and revolution, and (3) providing debilitating false hope to millions of people.
I hate to be the bearer of this news, but the plan for the federal government to spend more trillions is current and a big deal. Because economics is a primary topic of this blog, I believe that I owe it to my readers to address the issue. The last thing we all need right now is something else to worry about, but the issue is too huge to be ignored. On the other hand, if you cannot handle more bad news right now, my advice is to find something else to read for the time being.
For many years (1) Republicans have donned somber faces and spoken in ominous tones about the national debt—as they did essentially nothing about it and have routinely voted for things that have exacerbated the problem, and (2) Democrats have scoffed at the national debt as unimportant except when it can be used to justly bash Republicans as hypocrites—as they have continuously proposed and voted on new spending, tax, and other proposals that increase debt and diminish the economy’s ability to produce enough wealth to service the debt.
Prior to the pandemic, the levels of national debt and unfunded liabilities were untenably high,[i] ineluctably growing, and the political will to slow the growth was nonexistent. Given the mal-informed public’s indifference to debt and pleas for more spending, for a politician to actually do anything to slow the growth of spending, much less reduce the country’s spending would have been an act of political suicide.
Worse, even if there had been such a political will, no plausible theory to reduce the debt to a tenable level exists (with the possible exception of a pandemic or other disaster that would wipe out a high percentage of people drawing social security and welfare benefits—which, of course, would be beyond terrible). There are plenty of reasons to believe that moves to reduce the debt would result in destructive civil unrest. Yet, Congress is in the process of passing a spending plan that will vastly increase the debt and the Federal Reserve is printing money with unbridled abandon. Here are a few images from Venezuela showing what the end of the above process looks like.
As a result of the history described above, the country may have already created such a powerful black hole of debt that being sucked into its vortex (i.e., suffering a financial collapse) is unavoidable. The closer mounting debt pushes the country toward the black hole, the more powerful its pull.
In light of the above, one might conclude that bailing out companies, sending checks to individuals, and “printing” money to deal with the current crisis is a mistake. After all, there is no question that each move will take the country closer to the black hole and will fortify the populous’ errant belief that government spending is excellent, unlimited, and harmless—thereby making it even harder to turn back from the brink.
Nevertheless, one would be wrong to conclude that spending and “printing” should not be done.
The country’s chances of avoiding a financial collapse in the (hopefully distant) future were low before the impending spending splurge. However, unless the country’s economy can be revived, its chances of avoiding an economic collapse in the near term are almost certainly zero. The economy weakens with every hour that it remains mostly shut down. The business interruptions have placed many large and most small businesses at or beyond the point of no recovery. Without a significant recovery by most businesses, the economy will surely collapse soon. If desperate people have no hope of receiving cash for an extended period, civil unrest could bring the whole thing to a stop. Keeping enough companies and desperate people afloat will not be possible without federal government action. The planned measures are desperate and unwise in non-desperate situations. Sadly, we are in a desperate situation.
Let’s hope and pray the bitter pill of more spending will allow us to have a chance gain a footing that will enable the country to push the economic collapse well into the future and that the country finds a way to convince a solid majority of voting Americans that socialism is both unsustainable and a huge step in the wrong direction. The alternative is too bleak to discuss.
UPDATE: Following the publication of this post, Peter Robinson of the Hoover Institution conducted this excellent and pertinent interview of John Taylor: “The Corona Economy with John B. Taylor”
[i] As I write, the reported national debt is almost $24 Trillion, is growing, and the clamor for more spending may be at an all-time high, not counting the $2 – 3 Trillion additional spending Congress is trying to get passed right now. The government’s commitments to pay money in the future are over five times larger than the reported debt.
In yesterday’s daily press briefing, Trump said his administration would figure out how to prevent any corporate bailout money being used to buy back stock. The country is facing many problems right now. Spending time and effort in these times on a non-problem is a bad idea.
Companies buy back their stock when they have more cash on hand than they have ideas, skills, or capacities to produce things people need or want. If those companies keep such excess money, the money won’t be used to provide goods or services people want or need. Idle cash helps no one. Money put to productive use helps everyone.
If a company buys back its stock, the stockholders who receive the money will use most or all of the part of the money (leftover after capital gains taxes are paid) to invest in companies that have good ideas as to how to make stuff people need or want.
Consequently, whether or not the bailout money is used to buy stock, that money will be invested in making new or more stuff people want or need. Workers and consumers win no matter which company profitably invests the money. Idle cash in companies with insufficient ideas as to how to deploy it effectively prevents the money from being put to better uses.
The bailouts of corporations will be either a good idea or a bad idea independent of what any individual corporation does with the money.
Another relevant observation is that few companies reject the corporate finance theory of an “optimal debt/equity ratio.” A rule of thumb is: “The optimal D/T ratio varies by industry, but it should not be above a level of 2.0” (i.e., company debt should not exceed twice the value of its stock).
So, almost all companies have debt. Given how much the value of corporate stocks have fallen recently, most companies have an unusually, probably dangerously, high debt ratio (the higher the debt/equity ratio is, the greater the risk of going out of business. Given how much riskier doing business is now than it was two months ago, the best use of some or all of any bailout money could be paying off debt to stay in business (rather than buying back stock or being thrown into bankruptcy).
Concerning companies that do not have too much debt right now, if Trump precludes companies from buying back stock with bailout money, nothing would prevent them from paying off debt.
The worst alternative would be for Trump to disallow the use of bailout money either to buy back stock or to pay off debt. In that case, the funds would be far less likely to be put to productive use.
The idea that the government dictating how companies use their resources will either work or is a good idea is a bad idea.
The fact that leftists are in constant fear that someone somewhere might be making a profit is making the adoption of sound economic policies harder. That the general public thinks it knows more than it does about corporate finance or how a company can increase its chances of continuing to provide jobs and to serve the wants and needs of the people isn’t helping either.
Italy’s universal healthcare system is experiencing the harsh reality of living in a world with scarce resources, as all real worlds are. Italy, like every other country, has a limited number of doctors, nurses, hospital beds, medical devices, medicines, test kits, etc. When the demand for those “scarce resources” exceeds their supply, the resources must be rationed. No matter what rationing scheme is used, some people will get some or all the care they need as others get little or none at all.
As the Boston Globe reported[i] about a Bergamo, Italy hospital’s response to the COVID-19 outbreak, “the intensive care unit was already at capacity, and doctors were being forced to start making difficult triage decisions, admitting people who desperately need mechanical ventilation… making clear that the “first come, first served” criterion that had been used among patients with the same illnesses and level of risk in ordinary times was not appropriate in dealing with the current emergency… How do we decide who gets an ICU bed and who doesn’t? Age? Life expectancy? How many kids they have? Their special abilities? Is the patient’s profession a relevant factor? Is it right to save a middle-aged doctor who will save more lives if he survives as opposed to a younger person who’s been unemployed for the last 12 months?”
When faced with an overabundance of patients and scarce medical resources, no rationing scheme is a solution, i.e., all the available options involve agonizingly terrible tradeoffs. If the severity of America’s (or anywhere else’s) COVID-19 outbreak approaches that of Italy’s, some people will get medical aid while others do not. Equality is not a solution. If available medical care were divided equally among all patients, a higher number of patients would die.
Those who have insufficient knowledge or understanding of economics will fault politicians, hospitals, drug companies, or [you name it] for having failed to ensure that the country was fully prepared for the pandemic. Some of the chronic critics will cluelessly theorize that vastly more resources could and should have been poured into training doctors, inventing and stocking tests kits and antidotes, building enough hospital rooms and medical equipment, etc. to handle the worst-case scenario of any conceivable emergency. In theory, that could have been done. In reality, however, preparing for the worst-case scenario of every possible emergency would be terrible public policy.
First, realize that only a fraction of the foreseeable potential emergencies will strike, and few that do will be as severe as the worst-case scenario. As a result:
- The amount of money necessary to achieve such preparedness would be colossal;
- A high percentage of that stuff acquired by the enormous sum will never be used (i.e., a high portion of the investment will have been wasted), e.g., statistically, if the country pays for preparedness for adverse effects that, on average, have a 50/50 chance of happening, half of the money spent on preparedness will have been wasted; [An example.]
- The money spent on the underutilized or unused preparedness stuff could have been invested in projects that could have done a lot of good, i.e., the opportunity cost of wasting money is large;
- Having wasted money on unneeded preparedness would leave the country with far less wealth and fewer resources to other pressing human needs and wants that exist or could arise, e.g., every dollar spent on healthcare is a dollar not available to spend on the environment; and
- Perhaps most importantly, given that not all future emergencies are foreseeable, the country would have wasted wealth that could have otherwise been used for unforeseen emergencies.
Consequently, draining the country of some of its capacity to address specific problems as they arise by paying for tens of thousands of unused hospital rooms and supplies for disasters that may not come for decades, if ever, is a profoundly unwise use of resources.
It is also self-defeating. During the time between a preparedness investment is made and the time that a worst-case emergency happens, only so many doctors are required to cover the normal state of affairs. With the hyper-preparedness demanded by chronic critics, many more doctors would be trained and added to the system. Those newly trained doctors would vie for the available doctor jobs, i.e., the doctor jobs required to serve non-emergency demand for medical services. As in all supply and demand situations, that excess supply of doctors would drive down doctors’ compensation.[ii] If, due to the overabundance of doctors, doctors pay is less than it currently is, fewer people to be willing to go to the trouble and expense of becoming a doctor. In the long run, training doctors who must sit on their hands until a catastrophe strikes would result in fewer doctors, not more doctors. That’s no solution.
The colossal amount of money necessary to chase the phantom of ultimate preparedness would require much higher taxes. Every tax dollar collected suppresses wealth creation.[iii] Worse, a noticeable fraction of the tax money the government receives is spent on running the government and placating or lining the pockets of politicians, rather than on things people need or want. [Does anyone believe that we are getting our money’s worth out of the dollars paid to or for Congresspeople and their staff?] Running money through the government to address a problem destroys wealth. Less wealth creation means that there will be less wealth to address problems than would otherwise be the case.
The complaints and demands of the clueless chronic critics are unfounded and misguided.
AUTHOR’S NOTE: This post about investing is out of the ordinary for this blog. It is prompted by the recent stock market “crash,” and the subsequent volatility. Over many years of observing coworkers and friends in the midst of stock market “crashes,” like the one underway now I’ve witnessed people doing very unwise things. Hopefully, this post will reduce the likelihood that my readers will make those mistakes in the future.
Rely on the following observations and comments at your own risk. I have no formal training in stock trading and have never been a stock analyst. I have, however, read and thought about the buying and selling of publicly traded stocks a great deal over the 50 years since I graduated high school. More important, during my long career and since, I’ve observed co-workers and friends reacting to “crashes” in ways I believe were monumental missteps—with no apparent ability to learn from their prior experiences. I have done reasonably well with my own investments using a different strategy, but that is largely because I have studiously paid little attention to my stock, bond, or money market holdings and have not paid people to guess what securities or when I should buy or sell. [Past performance is not necessarily indicative of future results.] Let’s sort out why paying little attention and not paying people to guess which or when you should buy or sell stocks or bonds can make sense.
First, the obvious: Saving and investing what the guessers would have charged for making guesses for me, rather than wasting the money on investment analysts, adds up to real money over time. Now let’s move on to sort out the less obvious, but very valuable other reasons not to pay for those “services.”
Consider these headlines about the “crash” that started on February 21, 2020:
“The S&P 500 is now 12% below the all-time high it set just a week ago. This is now the stock market’s worst week since October 2008…,” intoned the AP on February 27, 2020. [Yet, the recent low (3167) was 4.7 times higher than the low in 2009 (677), which was 6.3 times higher than the S&P 500 in 1980 (106). See charts below.]
“Long-term stock investors still shouldn’t buy the dip, says El-Erian…” That’s economist and investor Mohamed El-Erian updating his previous blanket call to refrain from the previously tried-and-true strategy of reflexively buying stock-market dips.” [Note: The “tried-and-true strategy” is often tried, but not always true. Such is the hallmark of every investing strategy. One should be wary of people who say that their previous “tried-and-true” strategy should not be followed.]
“Coronavirus stock market crash may have created a once in a lifetime buying opportunity: strategist.” [“May”? Why can’t they say, “did” or “didn’t”? Note: Using the word “may” is an admission that the author doesn’t know whether the crash created a “lifetime buying opportunity.” The reality is that the author does not know whether or not it even is a buying opportunity, much less a once-in-a-lifetime opportunity.]
The U.S. financial industry employs about 8.5 million people. A goodly percentage of those employees hold themselves out to be (and appear to believe they are) people who can reliably predict whether a publicly traded stock or bond will be worth more or less tomorrow (or next week, quarter, year, or decade) than it is now. The number of analysts that actually have that skill is zero. The fundamental reasons for this fact are (1) not all of the facts that need to be known to accurately predict the future value of any security are knowable, (2) the impact of the unknowable facts can overwhelm the impact of the known facts, and (3) excrement happens.
Evidence of the unpredictability of individual stock and bond prices over time is abundant. In a Forbes-conducted 14 year, 100 round contest between stock “experts” and dart-throwing monkeys, the stock “experts” eked out a statistically insignificant win (51% to 49%) concerning Dow Jones Industrial Averages (“DJIA”) predictions, before brokerage fees and expenses were applied (on average, people lost money paying analysts). On average, stock “experts” won 61% to 49% concerning predictions of individual stocks (before fees, etc.), but from one round to the next, individual “experts” sometimes won and sometimes lost,[i] i.e., their clients got wins and losses over time, which brought their average return closer to 50/50 (which was what the monkeys were achieving). That result is also skewed because some of the “winners” obtained advanced notice of soon to be published articles that artificially and temporarily boosted individual stock results (which cannot be consistently obtained by individual “experts”).[ii] Another indicator is that Morningstar, a “highly respected” mutual fund performance predictor” regularly publishes ratings of mutual funds that, it is reported, that do not correlate with how the rated funds perform.[iii] (My, perhaps faulty, recollection is that, during at least for some periods of time, Schwab’s rating system produced palpably poor results for investors who relied on it.) [I don’t know if Schwab paid Google to bury those stories or my memory is faulty, but I’d bet on my memory on this one because I was delighted at the time to see my theory validated.]
More fundamentally, however, if your stock analyst could predict rises and falls in stocks, your analyst would always advise you to withdraw your investments in stocks and bonds before they fall. Do you know anyone whose stock analyst consistently prevents their clients from ever losing money? I don’t. After crashes, analysts usually say something like, “No one saw that coming!”—as if that is an acceptable excuse for being not giving you the advice you needed, i.e., predicting future stock prices so that you can make money.
The mistake I’ve seen coworkers and friends make is this: They become frightened by sudden drops in the stock market and pull their 401K or other investments out of the market after the drop. Even when the market starts to rise, they remain too scared to put their money back in—lest they are burnt again. Only after an extended period of the market going up, they regain the confidence to put their money back into the market. Of course, at that point, the market has not only recovered all the previous losses it is on its well on its way to the next crash. Worse, when they muster the courage to get back in, they dump all their money back in all at once or over a short period of time. Sadly, that usually coincides with other people gaining similar confidence, i.e., the herd is arbitrarily increasing demand and pushing stock prices higher than is warranted. One would be hard-pressed to identify a worse strategy, but it is as common as it is bad.
Consequently, there is no “right time” to put all your money in the market. Even if there were a right time, there is no way to confidently know when the right time is. That, however, does not mean that people should not put money in the stock market. Quite the contrary. Let’s sort out that apparent contradiction.
The following charts reveal what is as knowable as anything can be known about stock prices.
The charts reveal that, at least in the past, stock prices go up over the long haul. There is no guarantee that the broad markets (e.g., DJIA, S&P 500, and NASDAQ) will continue to go up over the long haul, but the history of the U.S. markets provides reasons to believe they likely will. [With the looming risk Americans might elect more socialistic governments across the country, the likelihood is significantly less than it would otherwise be.
Sidebar: If the trend toward socialism is not turned back, no investment strategy will work and much of your gains, if you get any, will be confiscated anyway. Not investing and making less money between now and then will not save you. They will take from you whatever they determine you don’t need as much as others (especially the politicians and bureaucrats) need it—no matter how much you have.]
The huge short-term swings in the markets shown in the above charts also reveal that there is no way to predict when to invest or when to sell. Nevertheless, they do suggest a strategy (described below) that can work.
Investing in individual stocks is vastly riskier than investing in funds that track broad markets. Individual stock prices are much more volatile than averages of many stocks and the value of market indices going to zero is practically impossible. Which companies might go bankrupt is not easily predicted. Consider these companies that went bankrupt: General Motors, Chrysler, Braniff Airways, Enron, WorldCom, Conseco, Sears, ToysRUs, Kmart, CIT Group, Washington Mutual, Lehman Brothers, Circuit City, Sports Authority, and Kodak. Some of those companies are still in business but, upon bankruptcy, their stock and bondholders were wiped out or nearly so (sometimes unfairly so[iv]). In short, unless you have inside information, are into rolling the dice, or want to support a company for non-financial reasons, investing in individual stocks should be kept to a minimum.
The supposedly “sage” advice is to “diversify your investments.” A truly diversified portfolio of investments is impossible for at least two reason: (1) Many investment opportunities are “private” investments, i.e., not available to the ordinary investors (and even if they were, it is impossible to know enough to invest wisely in a wide array of ventures—so people tend to have too many eggs in any private investment basket, which is the opposite of diversity), and (2) The best mix of each kind of available investments is unknowable and unpredictable as well. For example, how much of your portfolio should be invested in South African Krugerrand coins, Russian icons, or the thousands of other esoteric possibilities? Absent some of each, you are not diversified. Nevertheless, more diversification is better than less. Shooting for (much less paying for) a perfect allocation is a waste of time (or money).
On the other hand, the charts above show that the DJIA, S&P 500, and NASDAQ have had a very good track record of increasing in value over the long haul. That streak might come to an end but predicting what might have a better chance of rising over time is unlikely to succeed and is almost certainly a riskier strategy. To reduce risk more, one would buy shares in multiple EFTs or mutual funds (carefully consider the charges of each to find ones with low fees and charges) for each of the broad market indexes. One would also not put all of her eggs in stock index funds. One would buy some bond indexes as well. (That is currently hard to do given the low yields they now create, but you will be glad you did when the stock market crashes from time to time.) I go even further and keep a very noticeable percentage of money in the even lower-yielding money markets.
What percentage of each kind of investment should you buy? It depends on your appetite for risk. The more money you put in stocks over bonds or bonds over money markets, the more money you will likely make over the long haul (if you live long enough), and the more likely you will have less investments to cash out if you happen to need to draw money out during a crash. Beyond that, there are nearly as many theories on what the mix should be as there are theorists. Rest assured, however, if you ask an investment adviser about investment allocation, she will likely give you the answer that creates the largest fees for her and/or her firm. [I’m not suggesting they are all unethical. Some surely are, but I believe most investment counselors who interface with the public do not know that the advice they have been taught to give is not worth the price charged for the advice or is unwise.]
Lastly, none of the above investing should be done all at once. Steady, consistent investing over time will result in you having bought stocks and bonds in up markets and down markets, i.e., you are likely to have a reasonably averaged purchase price, which, on average, will be lower than the price at which you will sell the investment (assuming the market continues to perform roughly as it has in the past).
The above advice may be worth exactly what you paid for it, i.e., nothing. If you look for them, you will find many articles that defend what stock analysts do. For the reasons above, I believe modern stock analysis for ordinary investors to be one of the biggest waste of human brainpower and talent (“human capital”) ever. Many will protest that some stock analysts have had long streaks of being at or near the top of stock analysts. That is true. It is also true that such streaks are a low probability occurrence. Here is a description of a similarly improbable event: “What is the probability of rolling a pair of dice 154 times continuously at a craps table, without throwing a seven? The answer is roughly 1 in 1.56 trillion, and on May 23, Patricia Demauro, a New Jersey grandmother, beat those odds at Atlantic City…”
In “Fooled by Randomness,” Nassim Taleb posed the following situation and question:
If one puts an infinite number of monkeys in front of (strongly built) typewriters, and lets them clap away, there is a certainty that one of them would come out with an exact version of the Iliad. Upon examination, this may be less interesting a concept than it appears at first: Such probability is ridiculously low. But let us carry the reasoning one step beyond. Now that we have found that hero among monkeys, would any reader invest his life’s savings on a bet that the monkey would write the Odyssey next?[v]
In short, a normal “bell curve” of random events will include very unlikely events, and bell curves of streaks will produce very unlikely streaks. Those who happen onto a winning streak make the news and often truly believe and claim the random event was due to their diligence and brilliance. Only a fool would be fooled by such randomness.
On the other hand, please note that there is a big difference between stock analytics and investment services. Some people are unwilling or incapable of carrying out any investment strategy, including the one described above. For those people, the services of an investment firm can be very valuable. Those valuable services include:
- Construction of a financial plan;
- Basic investment advisory services [excluding picking investments], e.g., helping you identify which funds have the lowest fees;
- Tax-efficient investing consulting;
- Rebalancing portfolio investments to maintain the desired mix of stock, bond, and money market investments;
- Holding investments, which are in your name, in a secure and reasonably safe place; and
- Maintaining and providing access to good accounting and tax records concerning your investments.
As I said above, use these observations at your own risk. If nothing else, I hope they are food for thought.
[ii] See “Can Monkeys Pick Stocks Better than Experts?” for the source of the cited numbers and, for greater wisdom on the general topic, see or listen to “Taleb on Black Swans,” or read the mother loads, “Fooled by Randomness” and “The Black Swan.” See also, “Analysts Do A Great Job Predicting The Past. The Future? Not So Much.”
[iii] “A plethora of studies have examined Morningstar, such as Blake and Morey (2000) who study the rating system to determine if they predict future fund performance for U.S. equity funds. They find no compelling evidence of significant outperformance.”
The eternal and most essential question for political scientists is how best to achieve and sustain a good balance of power between the governors and the governed. Let’s sort out the implications of ceding to the government the power to control healthcare.
Governments with too little power are unable to create sufficient structure (lawmaking, judicial systems, police, defense, rights protections, etc.) to facilitate human flourishing or stave off anarchy, chaos, and misery. Governments with too much power become tyrannical, which, until the tyrants are toppled, first impede and ultimately destroy human flourishing by the vast majority of the population. Moreover, too little power in the hands of the people ultimately leads to the governors aggregating too much power.[i] Too much people power leads to mob rule (e.g., democracy, something akin to a group comprised of five wolves and four sheep voting on what’s for dinner). A good balance keeps tyranny at bay, preserves human rights, facilitates advancement in standards of living, promotes morality, and can facilitate sufficient freedom for people to pursue happiness. Bad balances deliver the opposite, e.g., Mao’s China, Lenin’s and Stalin’s U.S.S.R., Hitler’s Germany, Chavez’s Venezuela, Kim Jong’s North Korea, etc.
Ceding some powers to the government, e.g., the power to collect taxes, set speed limits, incarcerate people after they have been found guilty beyond a reasonable doubt in a fair trial of a non-trivial crime, etc., is necessary and appropriate and most people gain much more opportunities to pursue happiness than they lose as a result of ceding that much power. History has shown that as potentially dangerous as ceding such powers is, prosperous and good societies can be sustained with the government having a great deal of power.
On the other hand, history has also shown that ceding too much power to the government is a sure path to disaster. The amount of power that can be safely ceded depends on, among other things, the charter of the people being governed. In general, the greater a people’s work ethic, self-reliance, honesty, prudence, capabilities, civility, political and economic astuteness, and wisdom, the greater the amount of power can be safely ceded to their government. A sad, but true reality is that people who, as a group, are too lazy, dependent, dishonest, low skilled, uneducated (or miseducated or mal-educated, which are typically worse than uneducated), and/or gullible will not be able to fend off tyranny even if those people luckily found themselves ruled by a non-tyrannical government.
America was fortunate to have been founded by knowledgeable, moral, civil, civic-minded and, wise men—despite many of them having some ideas and practices that, by today’s standards, are considered to be deeply immoral. America’s founder and second president, John Adams, sagely said, “Our Constitution was made only for a moral and religious people. It is wholly inadequate to the government of any other.” As a governed people become less moral/virtuous, they become less able to prevent their ever more government from becoming tyrannical.[ii] Consequently, the character of the people affects the location of the tipping point for ceding power beyond which disaster is inevitable.
Given that reality, it is best not to broach the edges of a country’s tipping point. Sadly, however, history cannot reveal where a country’s tipping point is. One reason for that is that the character of the people greatly affects how much power they can safely cede to the government and how the character of a people will change over time cannot be reliably predicted.[iii] Even if America’s populous today has sufficient character to cede as much power to the government as they currently have, the amount already ceded can become too much if their character changes for the worse. History does tell us that the more the people demand the government adopt more collectivist policies, the less virtuous the populous will become.[iv]
A country having people with sufficient morality and civility to run and sustain a democratic republic is rare in human history. As imperfect as the results of America’s democratic republic have been [hopefully, humans will devise a better system someday], it has enabled human flourishing in greater quality and quantity than all other systems yet devised. Having the history to sustain a democratic republic as long as America has is a blessing. Sadly, having a good enough history to enable people to flourish is as rare as it is precious.
Nobel Laureate in economics, Douglas North, observed that the reason many countries are unable to escape the mire of corruption and poverty (despite the availability of the knowledge, resources, and people wanting to help) appears to be that they and their ancestors did not have a history that engenders the ethics and mores necessary to envision, establish, and run a country as a capitalistic democratic republic (which, for the time being, is the best alternative humans have devised). When asked what a poor country could do to get out of the vicious cycle of tyranny, corruption, and poverty, North ruefully responded that they would need to get a new history.[v] Even if the country miraculously obtained a new history similar to the one gifted to America, it could squander that beneficial gift if it replaced the wise and good ideas of their new-found past with hip, new bad ideas, i.e., that hip, new idea of the 60s (1867 to be precise), socialism or MFA (although it could work for a while as it has in some developed countries because America has subsidized their freeloading[vi]). America squandering its historical blessings would damage both Americans and essentially everyone else in the world. Such squandering would be immoral.[vii]
Because of the pain, suffering, and lost opportunity to thrive that result from ceding too much power to the government is so devastating, ceding enough power to the government to approach the edges of a tipping point would be reckless and dangerous.
The Constitution created a governmental scheme designed to help the people keep the government from becoming tyrannical. The scheme’s checks and balances between the three branches of government, division of power between federal government and the states (enumerated rights, the 10th Amendment, and the power to appointment Senators), the electoral college, congressional super-majority vote requirements for especially important matters, the Bill of Rights, and the people’s power to hold politicians accountable has worked for a long time to keep tyranny at bay. Leftist politicians and judges have already repealed much of that framework and emasculated much of what is left. As a result, the government is already more tyrannical than the founders believed to be prudent.
Compelling cases are routinely made that the U.S. federal government has too much power already,[viii] i.e., that the people and states no longer have sufficient power to keep federal officials in check. The best course for the people to take at this juncture is to trim the powers of the federal government. MFA would be a gigantic step in the wrong direction. In fact, one would be hard-pressed to identify a greater ceding of power than empowering federal politicians and bureaucrats the power to provide, delay, or withhold the healthcare needed to relieve suffering or the saving of everyone’s life.
MFA is a collectivist’s dream. In practice, that dream eventually becomes a nightmare. As William Easterly observed, “…I’m just drawing on a lot of the recent academic literature which is kind of exploding literature on value and culture and economic looks at very, very long run trends and data. And the basic idea that emerges from that literature that’s relevant to this discussion is there’s this kind of vicious circle between a history of autocracy and collectivist values.” The circle is vicious because (1) autocracy suppresses much of that which enables human flourishing, and (2) adoption of collectivist values typically, if not inevitably, leads to more autocracy.[ix]
Ceding that gigantic and ominous power would, at a minimum, be one giant leap toward, the tipping point to tyranny. That leap could easily land well beyond the tipping point, thereby ensuring that our children and grandchildren will have a much worse life than we have had. Worse, as discussed in “Medicare For All? At What Cost To Us and The Rest Of The World?,” if America, fails, so goes the world.
[i] A topic that will be sorted out in an upcoming post.
[iii] Compare the dependency on the government of Americans in 1920 to today.
[vii] Consider the thousand year stagnation after the collapse of the Akkadian Empire (“1177 BC: The Year Civilization Collapsed”), the “Dark Ages” after Rome collapsed, and “Everything You’ve Ever Seen About Cuba Is A Lie.”
[ix] As William Easterly put it, “…I’m just drawing on a lot of the recent academic literature which is kind of exploding literature on value and culture and economic looks at very, very long run trends and data. And the basic idea that emerges from that literature that’s relevant to this discussion is there’s this kind of vicious circle between a history of autocracy and collectivist values.”