The Unintended Consequences of Government Interventionism.

February 27, 2015

This morning over Coco Puffs, my sons and I learned of a Maryland couple charged with  "unsubstantiated child neglect" by Child Protective Services. The crime? Allowing their kids to walk home from a park unattended.
Like you, I'm confused as to how one is charged with anything that remains unsubstantiated. More importantly, I'm agitated by the public sector's continuing onslaught into our private lives.
As Federal, state and local governments expand, there follows an increasing number of Americans forced to justify their salaries and pensions. Consequentially, an increasing cadre of Americans are forced to tolerate the nuisance of expanding government oversight and intrusion.
A client recently hosted an IRS agent in his conference room for four days. The reason? A Simple IRA audit. Throughout, the agent continually asked if someone could go to a convenience store for Dr. Pepper, as he preferred that to the water and Coca Cola with which the fridge was stocked.
After a couple days of document dredging and analysis, the agent asked if he could use the conference room again on the following day, as he did not have any place better to be.
It was like being audited by your mother in law.
Of course, most government intrusions are not so menial. Instead of affecting a company, they impact the nation. And given the rising tide of government intrusions into our personal and professional lives, one can only imagine the tsunami of unintended consequences to come.
I was educated on one this weekend.
Over Sunday brunch, a friend and I came to speak of the Affordable Care Act. In addition being an M.D., my friend happens to be a thoughtful political observer. One who defies classic political labels. That rare bird who votes with his mind, as opposed to his heart.
What impressed me was not his vision of U.S. healthcare, but its direction.
To begin, we discussed the changing state of his career these past three years. One that, he believes, will result in his moving towards the academic side of the medical profession, as opposed to the practical. Skipping the granular detail, we ended up concurring on one theme: that the world's most sophisticated healthcare system is being transformed into one that will, in 25 years, not be so sophisticated. Nor will it be comprised of professionals representing the nation's best and brightest. These will likely represent but a few of the unintended consequences resulting from the Affordable Care Act.
The ACA was originally sold as a program capable of providing insurance to 40 to 50 million uninsured Americans. Those already insured were told that nothing would change. They could keep their doctors. Retain their plans. And save a few bucks along the way. In other words, it was a well-intended effort to render healthcare less expensive and more expansive.
Yet, while the administration recently celebrated the roughly 11 million newly insured Americans two years after the plan's inception, there was nary a mention of the increasing difficulty in finding doctors. Dr. Kevin Grumbach of UCSF calls the phenomenon "medical homelessness." A state in which the system welcomes the newly insured but lacks the resources to treat them.
ACA? Meet unintended consequence.
California alone featured 3 million newly insured in mid-2014. Simultaneously, a third of the state's primary care physicians were retiring. Further, increasing insurance costs, decreasing incomes and status quo legal attitudes towards medical professionals have many current doctors questioning their willingness to continue. Not to mention a generation of bright, young Americans who perceive the medical profession as much less attractive than it once was. Leading them to other careers.
Recent findings from The Association of American Medical Colleges (AAMC) report that "The U.S. will be short more than 90,000 total physicians by 2020 and 130,000 physicians by 2025."
Further, Becker's Hospital Review wrote that, "one in three practicing physicians in the U.S. is over the age of 65 and close to retirement. Moveover, six in ten doctors state that it is likely many colleagues will retire in the next one to three years."
Patients nationwide have contacted physicians to schedule appointments only to find that their doctors have retired, or are preparing to do so. Some well before the standard retirement age. Having tired of the deluge of government-required paperwork, amid decreasing salaries and increasing legal risk.
Last night over dinner, a client underscored that very idea. A member of the American healthcare and scientific community, he is British born and Canadian raised. When asked of the U.S. healthcare system, he explained that U.S. patients always benefited by the shortest waiting periods for medical procedures. Conversely, the paperwork required for every procedure was massive. Today, it would seem that the U.S. will soon join the rest of the world in longer waiting periods without any change in the required paperwork.
So, we've degraded the positive while embellishing the negative?
Increasingly, it appears that the Affordable Care Act is a Potemkin Village. An impressive façade masking a variety of embarrassing interior elements. Though it began with noble intentions, the ACA's attempts to defy the economic laws governing complex systems may be its downfall. Or at least the downfall of all those patients forced to endure it.
Of course, the Affordable Care Act is one example. Which, on its own merits, I can hardly make a case. So, let's consider another well-intended program that also led to unintended consequences. Created by FDR, the Godfather of unintended political consequences.
In the 1930s, FDR decided to intervene in the American agriculture industry. An effort to address the imbalances of power between small farmers and their often larger, better heeled corporate buyers. Having convinced the Supreme Court that government handouts to farmers were permitted under the Constitution, the Federal government began a fifty year experiment in the distortion of free markets. So harming farmers, the market's participants, as well as U.S. taxpayers.
FDR's farm program promised to buy farmer's crops at a minimum price, thus ensuring that no farmer would be forced to sell commodities for less than the government's promised rate. Like an agricultural minimum wage. Then, there was a target price at which farmers would attempt to sell their goods. If a farmer managed to sell his crops for more than the minimum rate but less than the target rate, the government would pay the difference via "deficiency payments." These payments were intended to bring insufficient income levels up to some legislated, predetermined level.
Sounds ideal, right? Only, the next fifty years revealed two outcomes that teach an important lesson.
First, the average farmer's income remained lower than those of non-farming households throughout the five decades.
Second, the price floor forced the government to purchase mountains of supercilious products during years of low consumer demand or those involving bumper crops.
In other words, the fifty year program did not help farmer's income levels. Though the price floors wasted billions in taxpayer dollars.
History will ultimately link FDR with a litany of unintended consequences.
Consider the tens of millions of people currently receiving government benefits like welfare, Medicaid, unemployment, food stamps etc. The government typically provides such benefits so that people can subsist until they are re-employed and back on their feet. Unfortunately, today we find that people are refusing good, paying jobs because employment will adversely affect their benefit status. In some cases, could even result in less income per household.
In other words, ill-conceived government policy is discouraging low-wage workers from earning income and, ideally, escaping the cycle of government anti-poverty programs.
Of course, tipping points are only identified in retrospect. So, we'll never know when that critical level of public overreach was actually achieved. As Americans increasingly believe that government can provide for all of our needs, we end up tolerating much that would have only recently been intolerable.
Therein lies the danger.
For as Jefferson said, "A government big enough to give you everything you want is a government big enough to take away everything that you have."
Faced with mounting losses of privacy, tax dollars, motivation, personal liberty and public choices, how much are we willing to give up before we collectively say, enough. And what will be the consequences of having waited so long?

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