Monday, 16 October 2017

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How Does Obamacare Affect Your Money?

Posted by
March 5, 2010
in Blog

Last August, Ramesh Ponnuru, senior editor for National Review magazine and a contributor to many leading newspapers such as the New York Times, the Washington Post and the Wall Street Journal, published a Time article on Obamacare and its paradoxes. Over the past few months, this article has lost none of its relevance on the current issue. Since the Sound Money Project is dedicated to its namesake, “sound money”, and not politics in general, I will not comment on the other paradoxes of the health care debate. The one I focus on now is clearly described by Ponnuru:

“Public skepticism is warranted when the President promises to cut costs while simultaneously providing coverage to nearly 50 million uninsured people. It is even more warranted when his congressional allies seek to raise taxes to pay for all the new spending that this cost-cutting entails. We aren’t talking about short-term spending either; this isn’t a trillion-dollar investment in a new system that will ultimately save money. The Congressional Budget Office says the leading health-care-reform proposals will increase health-care spending and make the budget harder to balance in the long run.”

As any economist (not firmly in Washington’s pocket) can tell you, there is no such thing as a free lunch. If something as trivial as a lunch is never free, how can we believe any claim that healthcare will reach such perfection? The reality of the plan is that it will cost. Someone has to eventually pay the bill, if not the one getting coverage, then the taxpayer. Yet as many of us are aware, increased taxes are very politically unpopular. Even if some taxes squeak through the political machine to offset the healthcare plan, we should be skeptical as to whether the full cost will be taken into consideration. Government projects, such as Medicare and Social Security, have a way of ballooning until the money “mysteriously” dries up. And then we face even greater deficits than we previously had.

So what does a government do when it cannot tax its way out of a deficit (at least not and keep the current party in power)? What does that government do when in the middle of an economic downturn where many of its chief creditors are unwilling to pay for its excesses? It inflates.

As Dr. Walter Williams, professor of economics at George Mason University, states,

“When inflation is unanticipated, as it so often is, there’s a redistribution of wealth from creditors to debtors. If you lend me $100, and over the term of the loan prices double, I pay you back with dollars worth only half of the purchasing power they had when I borrowed the money. Since inflation redistributes (steals) wealth from creditors to debtors, we can identify inflation’s primary beneficiary by asking: Who is the nation’s largest debtor? If you said, “It’s the U.S. government,” go to the head of the class.”

So if this monstrously expensive healthcare plan gets pushed through, don’t expect sunshine and happiness to follow. Rather, expect the dollars in your wallet to be worth much less as the big machine attempts to inflate its way out of an even larger debt. Then we’ll see how much that free lunch you’ve been sold ends up costing.

Tom Duncan
Sound Money Fellow
Atlas Economic Research Foundation