(a) Yes (b) No (c) Duh?! -- How healthcare reform killed the economic recovery.

July 29, 2013

Occasionally, we miss the mark. Get it wrong. We fear certain things more than we should. Others we fear less than we should.
Harvard risk expert David Ropeik calls it the Risk Perception Gap. One's ability to recognize risk, understand its presence, helps one to reduce its potential harm.
Ropeik, however, recognizes that humans tend to underestimate risk. We see it. We understand it. Yet feel that the probability of being harmed is insignificant. So, we fail to protect ourselves. Repeik call this state of mind "Denialism," defined as the seemingly irrational denial of clear and convincing evidence by people whose worldviews conflict with that evidence.
Investors are serial victims, but suffer the consequences individually. Ropeik's denialism becomes a larger concern, however, when it occurs on a grand scale.
In March of 2010, President Obama signed into law comprehensive healthcare reform. The Patient Protection and Affordable Care Act (ACA) would make healthcare available to millions who lacked it. Such sweeping reform had been the elusive white whale of other well-meaning politicians. Yet, the overwhelming political capital and good will possessed by President Obama following his ground-breaking election enabled him to finish the job.
Facing tenacious, often zealous political opposition, the president committed himself to reform. Amidst a grinding, jobless economic recovery, he succeeded in turning his vision into law.
I've no doubt, in retrospect, than the President's advisors counseled him to complete HC reform while he could. Knowing that, the longer he waited, the more difficult the task would be. His advisors likely stated that the economy was recovering. Would soon be strong. That, if not now, then never.
So, against intransigent opposition, he signed ACA into law.
At the time, policy, media, economic and political pundits cautioned against enacting healthcare reform while the economy was still weak.
Still, risk be damned, there was no time to waste.
Two-and-a-half years of hindsight later, we can clearly see that a well-meaning president made a massive mistake.
Table the argument that healthcare reform failed to fix healthcare. All decisions, big and small, must be placed in context. And contextually, healthcare reform was the culmination of an ineffective decision making process. One that ultimately froze a poor economy in the tar pits of inaction. One that may have condemned us to slower growth and fewer opportunities in the decades ahead.
A recent Gallup poll (here) shows that forty-one percent of the businesses surveyed have frozen hiring because of healthcare reform. One-fifth said they had reduced the number of employees in the business as a specific result of the Affordable Care Act. Nearly 40 percent said they have pulled back their growth plans because of the Act. Only nine percent of small businesses felt that reform was good for business.
From doubt springs pessimism, that dark cloud that looms over decision makers, freezing them in their tracks. Like a garden needs the sun, so a business needs hope, optimism and opportunity. Otherwise, it stagnates, withers and dies.
Coming out of the 2008 credit crisis, the only critical economic objective was job creation. Unemployed was rampant. Consumers had been savaged. People needed to go back to work.
American companies, big and small, were seeking the proper incentives to rehire the massive numbers of unemployed. Tax breaks? Tax credits? An improving economy? Anything would help.
The Fed was on the job. Stimulating the economy like a teenager on Red Bull. Record-low interest rates. Massive monthly bond purchases. Money was flowing from D.C. like rivers of liquidity.
And yet.
While all of this was underway, the White House decided to initiate the largest ever reform of the largest sector in the U.S. economy. While over 10 percent of Americans were unemployed.
See risk. Understand risk. Act accordingly. The risk? Sweeping change at such a tenuous moment would kill a fledgling economic recovery. But, the White House didn't see it that way. Or, thought it was worth the stretch.
Employers soon realized they would be forced to provide across-the-board healthcare or face punitive taxes.
Unlike much of what occurs in the public sector, private sector organizations inhabit the real world. It can be Darwinian. There are boundaries. Promises must be delivered upon or they are recognized for what they are: overstatements at best, lies and fabrications at worst.
Private sector enterprises are forward looking and hyper-efficient. They utilize balance sheets. Income statements. Set realistic goals and objectives. Manage expectations. They cannot overpromise, then under deliver, and expect to survive. Shareholders, trustees and customers hold the leadership of private enterprise to specific formula:
Promises Kept/Expectations + Results Delivered - Mistakes = Success
Success means survival. So, survival is the sum of achieving positive results while effectively keeping one's promises and accounting for one's mistakes.
Government is the very antithesis of that formula:
Bold Promises + Enriched Private Interests + Media Coverage = Success
Government can overpromise. Then under deliver. Stand for reelection. And win.
In business, consumer decisions are based on price and quality. In politics, decisions are based on emotion. Who can give you the most while requiring the least. This breeds cronyism. Fraud. Mismanagement. Consider Detroit, D.C., L.A. and Illinois.
So, when D.C. told businesses across the nation that they would be forced to take on additional expenses at a time when most businesses were struggling to keep employees, enterprises big and small responded predictably: they froze all hiring.
Q: Economy is terrible. As a business owner, should you:
(a) Take on additional expenses and stretch a weak balance sheet to the breaking point.
(b) Freeze hiring in order to keep your doors open and continue to employ your current staff - even if it means cutting hours and wages.
(c) Duh!?
Any macroeconomics student might have foreseen such an unintended consequence. But, not the Federal government. So we have healthcare reform. Resultantly, what has transpired thus far?
-For the first time in history, the number of people in the U.S. receiving assistance from the Federal government to pay for food has exceeded the number of full-time, private sector employees.
-The number of Americans collecting food stamps surpassed the population of Spain earlier this year.
-The number of working-age, able-bodied Americans not in the labor force reached 90 million this year, putting the labor force participation rate at 63% -- the lowest rate since the Carter administration.
-The U.S. has experienced 54 consecutive months with the unemployment rate at 7.5% or higher - the longest such stretch since 1948.
-The second-largest employer in the U.S., behind Wal-Mart, is Kelly Services, a temporary staffing firm.
-While representing the largest unemployed group in the nation, recent college graduates are also holding record amounts of student loan debts, having increased by 281% the last decade, and having seen the interest rate on student loans recently jump to 6.8%.
If I had not been told otherwise, I'd say this recovery looks like a recession. With universal healthcare.

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