Health care reform could strangle the economy
OPINION - Health care and the economy are far more intertwined than some might care to acknowledge.
On Tuesday, contentious health care reform legislation being advanced by President Obama and congressional Democrats passed the Senate Finance Committee, with the support of a lone Republican backer. While the president’s signature issue must still pass a full vote in both houses, the committee’s action on the plan provided a psychological boost to a signature domestic issue that has been mired in controversy for months.
Simultaneously, the price of gold in spot markets soared to a new all-time high, to $1068.3 per ounce. Gold has skyrocketed largely on the back of weakness in the U.S. dollar, whose downtrend – which began under former President George W. Bush – has picked up alarming momentum over the last year.
Two seemingly unrelated events? Unfortunately, no. In fact, they are far more intertwined than some might care to acknowledge.
In a well-reasoned article earlier this week, Thomas Sowell mentioned the “interconnectedness” of policies and events that are the hallmark of a market-based economy: because everything is related, nothing is separate. In other words, the fate of universal health care and the travails of the U.S. dollar cannot be extricated from one another.
Until very recently, the greenback was considered the premier global reserve currency by major economies because of the health of the U.S. economy and relative safety of our assets. Over the last several months, however, that value proposition has been sharply eroded by the financial crisis and federal government’s response. A faltering economy, exploding public spending and projected cumulative deficits of at least $9 trillion dollars over the next ten years have undermined the safe-haven status of dollar-denominated assets.
International investors have put America on notice by shifting money out of dollars and into other currencies such as the euro and yen. The unprecedented liquidity and low interest rates created by the Federal Reserve to revive the economy are the proximate cause, but the greenback’s diminishing allure is also being driven by the worsening fiscal outlook.
We can follow the trail of breadcrumbs directly to the health care plan being molded on Capitol Hill. The 10-year, $829-billion health care proposal is touted as the most practical way to stem rising costs and provide coverage to uninsured Americans, yet it is far from certain that those objectives can be met. But experts are rightly skeptical that the federal government can effectively contain surging health care costs that are already crippling entitlement programs such as Social Security and Medicare.
And the government’s track record in assessing costs accurately is less than reassuring. As the Heritage Foundation points out, the initial 1990 cost estimates for Medicare when it was launched in 1967 were $12 billion. The actual 1990 figure? A whopping $110 billion – off by nearly a factor of 10.
Despite humanistic arguments in favor of insuring the poor, health care reform has become a euphemism for a powerful argument against increasingly untenable federal spending. Excess liquidity and the soaring budget deficit has clearly become an albatross for the U.S. dollar, and its weakness raises the specter of surging costs for food, energy and investment flight.
Investors rightly fear massive inflationary pressures are being stoked by artificially low interest rates and unrestrained expansion of the government – and a new entitlement program could very well bring the economy to the brink of insolvency.
