Category Archives: Healthcare

‘Build Back Better’ Plan Would Make Medicaid Bigger With Less Flexibility, Accountability 

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One proposal in Democrats’ $3.5 trillion social spending bill not only would increase the number of Americans on government-run health care, but expand the federal government’s role in delivering that care. (Photo: Fat Camera/Getty Images)

A lot of transformative health care policy is embedded in Democrats’ $3.5 trillion social spending bill, including continuation of the Biden administration’s campaign to strip away state flexibility and consolidate greater federal control over Medicaid.

Medicaid, the joint federal-state program to provide health care services to certain low-income Americans, has seen an explosion in enrollment and spending.

The Centers for Medicare and Medicaid Services announced over the summer that a record 80 million Americans are enrolled in Medicaid, and federal spending on it has increased by an estimated 19%.

At the same time, the Biden administration has taken unprecedented steps to curb states’ ability to manage and stabilize Medicaid.

The “Build Back Better” plan, making its way through Congress under a “budget reconciliation” process that will allow Democrats to pass it without any Republican votes, would accelerate these troubling trends and further expand the welfare state.

Most notable in the $3.5 trillion spending bill is creation of a Medicaid-like program. Under the proposal, the federal government would set up and run a new program to provide medical services to individuals in states that elected not to expand their own Medicaid programs.

This proposal not only would increase the number of Americans on government-run health care, but also expand the federal government’s role in delivering that care. Moreover, while the program seems narrowly focused, it is certainly reasonable to assume that it could be expanded and pave the way for a full-blown government takeover.

Rather than expand the broken welfare state, President Joe Biden and Congress should focus on addressing the root causes of the country’s health care woes, such as costly regulations that drive up health care premiums and drive down affordable coverage options.

The Build Back Better plan also would expand Medicaid’s role in delivering long-term care services. If passed, the bill would create a grant program for states to expand access to home and community-based services through Medicaid. It would boost the federal share of costs for states that adopt this expansion, and the federal government also would assume a greater share of related administrative costs.

The COVID-19 relief bills passed by Congress already provided significant federal resources to the states, including an increase in Medicaid assistance for the duration of the public health emergency as well as for home and community-based services.

The spending bill would mean a significant and permanent increase in taxpayer spending on the Medicaid program and exacerbate a growing shift toward the federal government’s assuming a greater share of the cost of Medicaid.

Using Medicaid to solve the long-term care challenges is shortsighted and poorly targeted. Expanding government’s role in delivery of long-term care services drives out private options and stretches an already overstretched safety net aimed at the poor.

Rather than expand Medicaid’s role in long-term care, Congress should promote private alternatives, preserve the safety net for those who already depend on it, and reduce long-term dependence on Medicaid.

The Build Back Better plan also would undermine state flexibility by imposing new federal requirements on the states.

Under Medicaid, the federal government sets out basic rules and the states have significant authority to design their own programs within those parameters. The spending bill would change the status of some populations and services from optional to mandatory. Rather than giving states the ability to tailor programs to meet their unique demands and needs, this proposal would chip away at state flexibility in favor of federal eligibility and benefit mandates.

Finally, Democrats’ bill also would make policy changes that weaken oversight and accountability over these programs. Specifically, the bill would require that certain enrollees remain on Medicaid for an entire year regardless of changes to their eligibility status.

The bill also would make the process of enrolling in Medicaid easier by making “express” eligibility determinations. And the bill would permanently extend the Children’s Health Insurance Program and its funding, removing the need for regular congressional review of the program and essentially putting it on autopilot.

These actions would strip states of flexibility, remove accountability for these programs, and enlarge government’s control over Medicaid and health care in general. Rather than expand the government’s role in health care and put more federal mandates and requirements on the states, Congress should give states greater flexibility to manage the needs of their citizens without adding to the cost.

This health care fight is about control over dollars and decisions. It is a choice between a federal, one-size-fits-all solution that puts Washington first or a flexible solution that puts Americans in need and those closest to them first.

Have an opinion about this article? To sound off, please email letters@DailySignal.com and we’ll consider publishing your edited remarks in our regular “We Hear You” feature. Remember to include the url or headline of the article plus your name and town and/or state.

Arkansas’ own Nick Horton featured on Dan Mitchell’s blog!!! Below is the best video I have ever seen on Obamacare’s lies about Medicaid!!!!

An Under-Appreciated Victory over Obamacare
July 14, 2014 by Dan Mitchell
Let’s enjoy some semi-good news today.

We’ve discussed many times why Obamacare is bad news, whether we’re looking at it from the perspective of the healthcare system, taxpayers, or workers.

But it could be worse. Writing in the Washington Post, Robert Samuelson explains that two-dozen states have refused the lure of expanding Medicaid (the means-tested health care program) in exchange for “free” federal money.

From 1989 to 2013, the share of states’ general funds devoted to Medicaid has risen from 9 percent to 19 percent, reports the National Association of State Budget Officers. Under present law, the squeeze will worsen. The White House report doesn’t discuss this. …To the White House, the right-wing anti-Obamacare crusade is mean-spirited partisanship at its worst. The 24 non- participating states are sacrificing huge amounts of almost-free money… Under the ACA, the federal government pays all the cost of the Medicaid expansion through 2016 and, after that, the reimbursement rate drops gradually to a still-generous 90 percent in 2020.

But that “almost-free money” isn’t free, of course. It’s simply money that the federal government (rather than state governments) is diverting from the productive sector of the economy.

So the 24 states that have rejected Medicaid expansion have done a huge favor for America’s taxpayers. To be more specific, Nic Horton of Watchdog.org explains that these states have lowered the burden of federal spending (compared to what it would have been) by almost $90 billion over the next three years.

By not expanding Medicaid, 24 states are saving taxpayers $88 billion over the next three years. That is $88 billion that will not be added to the national debt — debt that will not be passed on to future generations of taxpayers. On the other hand, states that have expanded Medicaid through Obamacare are adding roughly $84 billion to the national debt through 2016.

Returning to Samuelson’s column, he would like a grand bargain between states and the federal government, with Washington agreeing to pay for all of Medicaid (currently, states pay a portion of the bill) in exchange for states taking over all spending for things such as roads and education.

We could minimize this process for states and localities by transferring all Medicaid costs to Washington (or at least the costs of the elderly and disabled). To pay for it, Washington would reduce transportation and education grants to states. Let Washington mediate among generations. Let states and localities concentrate on their traditional roles of education, public safety and roads. Spare them the swamp of escalating health costs. This is the bargain we need — and probably won’t get.

I like half of that deal. I want to transfer education, law enforcement, and roads back to the state level (or even the local level).

But I don’t want Washington taking full responsibility for Medicaid. Instead, that program also should be sent down to the states as well. This video explains why that reform is so desirable.

Promote Federalism and Replicate the Success of Welfare Reform with Medicaid Block Grants

Uploaded on Jun 26, 2011
The Medicaid program imposes high costs while generating poor results. This Center for Freedom and Prosperity Foundation video explains how block grants, such as the one proposed by Congressman Paul Ryan, will save money and improve healthcare by giving states the freedom to innovate and compete.

________________________

P.S. Since we’re on the topic of Obamacare, this Chip Bok cartoon perfectly captures the essence of the Hobby Lobby decision. The left wants the mandate that contraception and abortifacients be part of health insurance packages.

Rather than exacerbate the damage of using insurance to cover routine costs, wouldn’t it make more sense to have employers simply give their workers more cash compensation and then allow the workers to use their money as they see fit?

That way there’s no role for those evil, patriarchal, oppressive, and misogynistic bosses!

I realize this might upset Sandra Fluke, but at least she has the comfort of knowing that her narcissistic statism generated some good jokes (here, here, and here).

________________

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I don’t feel sorry for Insurance Companies that endorsed Obamacare but I feel sorry for taxpayers who are about to bail them out!!!

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Open letter to President Obama (Part 460) Lots of reasons to still oppose Obamacare (includes editorial cartoon)

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Reason’s Peter Suderman highlights six reasons why states should refuse to implement any part of ObamaCare

Jacque Martin asks CATO Institute Michael Cannon about Obamacare Published on Mar 19, 2013 The CATO Institute’s Michael Cannon spoke at the Arkansas Conservative Caucus on Tuesday March 19th. Several conservatives were present. Cannon talked about how to defeat Obamacare in Arkansas & how the states can stop Obamacare on a national level. Jacque Martin […]

Republicans in Arkansas messing up by endorsing Obamacare

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Lots of reasons to still oppose Obamacare (includes editorial cartoon)

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Michael Cannon on Obamacare (editorial cartoons on Judge Roberts and Obamacare)

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Brummett is arguing over the chairs on the Titanic as Obamacare will surely bankrupt state

Michael Cannon on Medicare and Healthcare In his article, “Medicaid and the consequences,” Arkansas Democrat-Gazette, March 20, 2012, (paywall), Brummett admits, “Medicaid will break the bank of state government if we don’t do something.” However, he never gets around to saying that Obamacare is going to ruin the state financially. It will expand this failing […]

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“Schaeffer Sunday” Abortion debating with Ark Times Bloggers Part 8 “Dr. John Russell:Treatment of preborn compared to slaves’ treatment” (includes the film THE BASIS FOR HUMAN DIGNITY and editorial cartoon)

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Dan Mitchell article Free-Market Health Care

Free-Market Health Care

Programs such as Medicare and Medicaid, along with the tax code’s healthcare exclusion, have created a system where consumers directly pay for only about 10 percent of the care they receive.

We think it’s normal and appropriate for either the government or an insurance company to foot the bill.

Yet this system of “third-party payer” explains why the health care system in the United States is inefficient and expensive.

Is it possible, though, to put the toothpaste back in the tube? Can we unwind the bad government policies that have undermined market forces?

There are certainly big-picture reforms that would be helpful. Genuine entitlement reform could address the problems with Medicare and Medicaid, and fundamental tax reform could get rid of the healthcare exclusion.

But progress is possible even without major policy change.

Reason interviewed a doctor, Lee Gross, who decided to set up a practice based on “direct primary care,” which means no involvement from government or insurance companies. Just health consumers and health providers directly buying and selling.

Here’s some of what he said about this market-based approach.

When I was in the fee-for-service system, I felt like I was playing a game of Whac-A-Mole with Medicare. …Eventually we just said, “No more.” …the epiphany was “Why are we inserting so many people at the primary care level between the doctor and the patient? Why are we insuring primary care?” The more people that you insert between the doctor and patient, the more expensive it gets, the more cumbersome it gets…we created one of the first direct primary care practices in the country. …essentially it’s a membership-based primary care program. …Once a patient is a member of our practice, anything that we can do within the four walls of our office is included at no additional charge. …Insurance is good for the big stuff. It’s not good for the little stuff. It’s too complicated. What we do in direct primary care is we make the predictable things affordable for everybody. We take the stuff that you’re going to need on an everyday basis and we put affordable price tags on it, and we say you don’t need your insurance for this. In fact, the insurance makes it more expensive. …You need your homeowners insurance if your house burns down. You don’t need it to mow the lawn.

The good news is that Dr. Gross’ practice is part of a growing movement.

Direct primary care is absolutely a growing movement. …There’s well over 1,500 practices around the country… There are some regulatory barriers that get in the way of expanding this model. …if we’re looking for the ideal health care system, we want to see three pillars. We want to see lower cost, better quality, and more choices. You cannot have all three of those in a government-run system. You can only have those in a free market capitalist system.

Indeed, I’ve shared previous examples of this phenomenon from Maine and North Carolina.

And it even works for surgery, as you can see from this must-watch video from Reason.

Let’s now circle back to some analysis of what’s wrong with the current system.

John Stossel explained a few years ago how government-encouraged over-insurance causes problems.

Someone else paying changes our behavior. We don’t shop around. We don’t ask, “Do I really need that test?” “Is there a place where it’s cheaper?” Hospitals and doctors don’t try very hard to do things cheaply. Imagine if you had “grocery insurance.” You’d buy expensive foods; supermarkets would never have sales.Everyone would spend more. Insurance coverage—third-party payment—is revered by the media and socialists (redundant?) but is a terrible way to pay for things. Today, 7 in 8 health care dollars are paid by Medicare, Medicaid or private insurance companies. Because there’s no real health care market, costs rose 467 percent over the last three decades. By contrast, prices fell in the few medical areas not covered by insurance, like plastic surgery and LASIK eye care. Patients shop around, forcing health providers to compete.

The final couple of sentences are extremely important.

As illustrated by this data from Mark Perry, there are a few parts of the health care system where there’s little or no third-party payer.

And what do we find? Prices go down rather than up.

For all intents and purposes, the goal should be to make health insurance more like homeowners insurance or auto insurance.

Speaking of the latter, David Graham compared market-driven auto insurance and government-subsidized health insurance.

There are…similarities between health care and car ownership… We can go for many years with predictable spending on both cars and medical care until — out of the blue — something terrible happens. For that reason, we value insurance for both. But there’s a key difference… Car insurance, while not a trivial expense, is a relatively small share of the total cost of owning a car. According to the AAA, the average premium was $1,023, just under 12 percent of the total cost of ownership. Even excluding depreciation, insurance is just one-fifth of the total cost. In other words, we do not expect auto insurers to pay claims for most of the cost of operating and maintaining a car. Health care is completely the opposite. …Insurance adds administrative costs and bureaucratic interference. …Left to our own devices, we would never buy coverage for every single medical expense.

The moral of the story is that government intervention has made America’s health system a mess.

Unsurprisingly, many politicians say the answer it to have even more government (which is how we got Obamacare).

P.S. In less than eight minutes, I explain the economics of third-party payer in this speech.

P.P.S. Government-created third-party payer also has led to higher costs and widespread inefficiency in higher education.


Milton Friedman on Medical Care (Full Lecture)

Published on Feb 2, 2014

Taxmageddon and Obamacare: What Would Milton Friedman Say?

“I am in favor of cutting taxes under any circumstances and for any excuse, for any reason, whenever it’s possible,” economist Milton Friedman once said. So the Nobel Prize winner would undoubtedly be concerned this year asTaxmageddon, the one-year $494 billion tax increase that is poised to strike the economy in January approaches.

Friedman’s opposition to taxes was based on the idea that governments were inefficient in everything they did. “If you put the federal government in charge of the Sahara Desert, in five years there’d be a shortage of sand,” he quipped. By limiting government resources, he hoped to limit the size and scope of government.

Instead, the coming of Taxmageddon would make the federal government even more intrusive and influential. As such, it’s already slowing job creation, generating economic uncertainty, and reducing productive investment.

Friedman would also warn us about the dangers of Obamacare.

“The great achievements of civilization have not come from government bureaus,” he explained. “There is no alternative way so far discovered at improving the lot of ordinary people that can hold a candle to the productive activities that are unleashed by a free enterprise system.”

Yet Obamacare takes our health care system in exactly the wrong direction. Instead of putting people in charge of their own health care decisions, “it imposes several costly new mandates and restrictions on health insurers and providers that will raise health care costs and therefore premiums.” Further,“Obamacare raises taxes and adds 17 new taxes or penalties that will affect all Americans.”

Friedman warned that government involvement would lead to socialized medicine and that it would be “very much against the interests of patients, of physicians, and of other health care personnel.” Why? Because “you invariably get lower quality and a lower quantity of medical care.”

In one of his most famous quotes, Friedman pointed out that “there’s no free lunch.” Every government “benefit” is paid for by somebody.

Friedman would have been 100 years old today. His wise counsel is missed, but the lessons he taught apply just as much to today’s debates as they did during his lifetime.

___________

I have written about Obamacare over and over again on this blog. Dan Mitchell has shared many funny cartoons about Obamacare too. Milton Friedman has spoken out about government healthcare many times in the past and his film series FREE TO CHOOSE is on You Tube and I encourage you to watch it. It is clear that the federal government debt is growing so much that it is endangering us because if things keep going like they are now we will not have any money left for the national defense because we are so far in debt as a nation.

We have been spending so much on our welfare state through food stamps and other programs that I am worrying that many of our citizens are becoming more dependent on government and in many cases they are losing their incentive to work hard because of the welfare trap the government has put in place. Other nations in Europe have gone down this road and we see what mess this has gotten them in. People really are losing their faith in big government and they want more liberty back. It seems to me we have to get back to the founding  principles that made our country great.  We also need to realize that a big government will encourage waste and corruption. Also raising taxes on the job creators is a very bad idea too. The Laffer Curve clearly demonstrates that when the tax rates are raised many individuals will move their investments to places where they will not get taxed as much.

In 1980 I read the book FREE TO CHOOSE by Milton Friedman and it really enlightened me a tremendous amount.  I suggest checking out these episodes and transcripts of Milton Friedman’s film series FREE TO CHOOSE: “The Failure of Socialism” and “The Anatomy of a Crisis” and “What is wrong with our schools?”  and “Created Equal”  and  From Cradle to Grave, and – Power of the Market.

Milton Friedman – Health Care Reform (1992) pt 1/4

Milton Friedman – Health Care Reform (1992) pt 2/4

Milton Friedman – Health Care Reform (1992) pt 3/4

Milton Friedman – Health Care Reform (1992) pt 4/4

_____________________

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______ Milton Friedman’s Free to Choose (1980), episode 3 – Anatomy of a Crisis. part 1 The Region – Banking and Policy Issues Magazine – Interview with Milton Friedman June 1992 In his new book, Money Mischief, economist Milton Friedman compares inflation to alcoholism; blames the rise of Chinese communism, in large part, on an […]

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Walter E. Williams: “Milton Friedman was an economist’s economist” Wednesday, Dec. 6 2006 1

________ Milton Friedman on Donahue – 1979 Uploaded on Aug 26, 2009 Dr. Milton Friedman, Nobel Laureate, promoting “Free to Choose” on the show Donahue. Walter E. Williams: Milton Friedman was an economist’s economist Print Font [+] [-] Leave a comment » By Walter E. Williams Published: Wednesday, Dec. 6 2006 12:00 a.m. MST Walter […]

FRIEDMAN FRIDAY 40 Years Later: Milton Friedman’s Legacy in Chile “Chilean Miracle” Struck a Blow against Communism When Needed Most José Niño April 22, 2015

_______ José Niño José Niño is a graduate student based in Santiago, Chile. A citizen of the world, he has lived in Venezuela, Colombia, and the United States. He is currently an international research analyst with the Acton Circle of Chile. Follow@JoseAlNino. 40 Years Later: Milton Friedman’s Legacy in Chile “Chilean Miracle” Struck a Blow […]

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FRIEDMAN FRIDAY Which Fed Bill Would Milton Friedman Have Liked? Posted on March 10, 2015by John Taylor

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A great speech below: Here are the myths:Robber Baron Myth, The Cause of Great Depression Myth, The Demand for Government Service Myth, The Free Lunch Smith, and The Robin Hood Myth. 1) the Robber Baron Myth, 2) the Great Depression Myth, 3) the Demand for Government Service Myth, 4) the Free Lunch Myth, and 5) […]

FRIEDMAN FRIDAY SEPTEMBER 4, 2006 An Interview with Milton Friedman

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FRIEDMAN FRIDAY The Social Responsibility of Business is to Increase its Profits by Milton Friedman The New York Times Magazine, September 13, 1970.

Milton Friedman on Self-Interest and the Profit Motive 1of2 Milton Friedman on Self-Interest and the Profit Motive 2of2 The Social Responsibility of Business is to Increase its Profits by Milton FriedmanThe New York Times Magazine, September 13, 1970. Copyright @ 1970 by The New York Times Company. When I hear businessmen speak eloquently about the […]

FRIEDMAN FRIDAY Levin on Milton Friedman: ‘One Thing to Have Free Immigration to Jobs, Another for Welfare’ By Michael Morris | January 16, 2015

____________ Levin on Milton Friedman: ‘One Thing to Have Free Immigration to Jobs, Another for Welfare’ By Michael Morris | January 16, 2015 | 5:12 PM EST During his show on January 15, 2015, Nationally syndicated radio host Mark Levin recalled the famed economist Milton Friedman and explored an important reason why open immigration, despite […]

“Friedman Friday” Milton Friedman videos on medical care!!!

Milton Friedman on Medical Care (Full Lecture)

Continue reading

FRIEDMAN FRIDAY How to Cure Health Care: What We Can Learn from Milton Friedman 2 years ago Kurt Jaros

How to Cure Health Care: What We Can Learn from Milton Friedman

I recently read about Michael Ciampi, a doctor from Maine who has stopped accepting payments from insurance companies, both private and public. The article states:

…the decision to do away with insurance allows Ciampi to practice medicine the way he sees fit, he said. Insurance companies no longer dictate how much he charges. He can offer discounts to patients struggling with their medical bills. He can make house calls.

One benefit to his new style of business is that patients who are self-employed, lack insurance or those with a high deductible will see Ciampi as having competitive prices for their medical needs. This is because the doctor has “cut [his] prices in half because [his] overhead will be so much less.

I’m not a health care expert, but for quite some time I have been skeptical of insurance companies. I see insurance companies as playing the role of middle man, which in most other areas of economics creates higher costs.

My esteemed economist Milton Friedman also recognized this. In his article “How to Cure Health Care” Friedman argues that third parties are (at least, partly) responsible for the rise in medical costs. He writes:

Two simple observations are key to explaining both the high level of spending on medical care and the dissatisfaction with that spending. The first is that most payments to physicians or hospitals or other caregivers for medical care are made not by the patient but by a third party—an insurance company or employer or governmental body. The second is that nobody spends somebody else’s money as wisely or as frugally as he spends his own … No third party is involved when we shop at a supermarket. We pay the supermarket clerk directly: the same for gasoline for our car, clothes for our back, and so on down the line. Why, by contrast, are most medical payments made by third parties?

Friedman goes on to explain how this came about back during World War II when employers first began offering medical coverage to employees (because the government placed wage control upon employers; hence employers offered other ways of payment to get around the regulation). The government quickly pounced on this to regulate it, but people objected. Thus, employers’ medical expenditures were treated as a tax-deductible expense instead being given as the employee’s income and subject to the income tax.

Additionally, in 1965 the birth of Medicaid and Medicare brought another third-party into the marketplace of healthcare insurance: the government. In my next post I’ll write on how and why the government’s cost has gone from “an eighth of the total in 1919 to a quarter in 1965 to nearly half in 1997,” according to Friedman.

Milton Friedman on Medical Care (Full Lecture)

Published on Feb 2, 2014

I have written about Obamacare over and over again on this blog. Dan Mitchell has shared many funny cartoons about Obamacare too. Milton Friedman has spoken out about government healthcare many times in the past and his film series FREE TO CHOOSE is on You Tube and I encourage you to watch it. It is clear that the federal government debt is growing so much that it is endangering us because if things keep going like they are now we will not have any money left for the national defense because we are so far in debt as a nation.

We have been spending so much on our welfare state through food stamps and other programs that I am worrying that many of our citizens are becoming more dependent on government and in many cases they are losing their incentive to work hard because of the welfare trap the government has put in place. Other nations in Europe have gone down this road and we see what mess this has gotten them in. People really are losing their faith in big government and they want more liberty back. It seems to me we have to get back to the founding  principles that made our country great.  We also need to realize that a big government will encourage waste and corruption. Also raising taxes on the job creators is a very bad idea too. The Laffer Curve clearly demonstrates that when the tax rates are raised many individuals will move their investments to places where they will not get taxed as much.

In 1980 I read the book FREE TO CHOOSE by Milton Friedman and it really enlightened me a tremendous amount.  I suggest checking out these episodes and transcripts of Milton Friedman’s film series FREE TO CHOOSE: “The Failure of Socialism” and “The Anatomy of a Crisis” and “What is wrong with our schools?”  and “Created Equal”  and  From Cradle to Grave, and – Power of the Market.

Milton Friedman – Health Care Reform (1992) pt 1/4

Milton Friedman – Health Care Reform (1992) pt 2/4

Milton Friedman – Health Care Reform (1992) pt 3/4

Milton Friedman – Health Care Reform (1992) pt 4/4

_____________________

Related posts:

Dan Mitchell on Obamacare Supreme Court Decision: “I’m disgusted that the Supreme Court once again has decided to put politics above the Constitution!” (Includes lots of videos and cartoons)

__________ Enzi statement on the Supreme Court’s King Vs. Burwell decision 5 Takeaways From Today’s Supreme Court Ruling on Obamacare Wicker Comments on King v Burwell Supreme Court Decision Senator Lankford Discusses the King v. Burwell Supreme Court Decision Congressman Steve King Response to SCOTUS King v. Burwell Ruling Obamacare and the Odious Anti-Constitutionalism of […]

Open letter to President Obama (Part 718) Cartoonists Go to War against Obamacare

Open letter to President Obama (Part 718) (Emailed to White House on 6-25-13.) President Obama c/o The White House 1600 Pennsylvania Avenue NW Washington, DC 20500 Dear Mr. President, I know that you receive 20,000 letters a day and that you actually read 10 of them every day. I really do respect you for trying to get […]

The Region – Banking and Policy Issues Magazine – Interview with Milton Friedman June 1992

______ Milton Friedman’s Free to Choose (1980), episode 3 – Anatomy of a Crisis. part 1 The Region – Banking and Policy Issues Magazine – Interview with Milton Friedman June 1992 In his new book, Money Mischief, economist Milton Friedman compares inflation to alcoholism; blames the rise of Chinese communism, in large part, on an […]

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FRIEDMAN FRIDAY How to Cure Health Care By Milton Friedman (A paper from 2001)

Milton Friedman on Medical Care (Full Lecture)

Published on Feb 2, 2014

I have written about Obamacare over and over again on this blog. Dan Mitchell has shared many funny cartoons about Obamacare too. Milton Friedman has spoken out about government healthcare many times in the past and his film series FREE TO CHOOSE is on You Tube and I encourage you to watch it. It is clear that the federal government debt is growing so much that it is endangering us because if things keep going like they are now we will not have any money left for the national defense because we are so far in debt as a nation.

We have been spending so much on our welfare state through food stamps and other programs that I am worrying that many of our citizens are becoming more dependent on government and in many cases they are losing their incentive to work hard because of the welfare trap the government has put in place. Other nations in Europe have gone down this road and we see what mess this has gotten them in. People really are losing their faith in big government and they want more liberty back. It seems to me we have to get back to the founding  principles that made our country great.  We also need to realize that a big government will encourage waste and corruption. Also raising taxes on the job creators is a very bad idea too. The Laffer Curve clearly demonstrates that when the tax rates are raised many individuals will move their investments to places where they will not get taxed as much.

In 1980 I read the book FREE TO CHOOSE by Milton Friedman and it really enlightened me a tremendous amount.  I suggest checking out these episodes and transcripts of Milton Friedman’s film series FREE TO CHOOSE: “The Failure of Socialism” and “The Anatomy of a Crisis” and “What is wrong with our schools?”  and “Created Equal”  and  From Cradle to Grave, and – Power of the Market.

Milton Friedman – Health Care Reform (1992) pt 1/4

Milton Friedman – Health Care Reform (1992) pt 2/4

Winter 2001
Since the end of World War II, the provision of medical care in the United States and other advanced countries has displayed three major features: first, rapid advance in the science of medicine; second, large increases in spending, both in terms of inflation-adjusted dollars per person and the fraction of national income spent on medical care; and third, rising dissatisfaction with the delivery of medical care, on the part of both consumers of medical care and physicians and other suppliers of medical care.

Rapid technological advance has occurred repeatedly since the industrial revolution – in agriculture, steam engine, railroad, telephone, electricity, automobile, radio, television, and, most recently, computers and telecommunication. The other two features seem unique to medicine. It is true that spending initially increased after nonmedical technical advances, but the fraction of national income spent did not increase dramatically after the initial phase of widespread acceptance. On the contrary, technological development lowered cost, so that the fraction of national income spent on food, transportation, communication, and much more has gone down, releasing resources to produce new products or services. Similarly, there seems no counterpart in these other areas to the rising dissatisfaction with the delivery of medical care.

I. International comparison

These developments in medicine have been worldwide. By their very nature, scientific advances know no geographical boundaries. Data on spending are readily available for 29 Organization for Economic Cooperation and Development (OECD) countries. In every one, medical spending has gone up both in inflation-adjusted dollars per person and as a fraction of national income. Data are available for both 1960 and 1997 for 21 countries. In 13, spending more than doubled as a fraction of gross domestic product. The smallest increase was 67 percent, the largest, 378 percent. In 1997, 16 of the 29 OECD countries spent between 7 percent and 9 percent of gross domestic product on medical care. The United States spent 14 percent, the highest of any OECD country. Germany was a distant second at 11 percent; Turkey was the lowest at 4 percent.

A key difference between medical care and the other technological revolutions is the role of government. In other technological revolutions, the initiative, financing, production, and distribution were primarily private, though government sometimes played a supporting or regulatory role. In medical care, government has come to play a leading role in financing, producing, and delivering medical service. Direct government spending on health exceeds 75 percent of total health spending for 15 OECD countries. The United States is next to the lowest of the 29 countries, at 46 percent. In addition, some governments indirectly subsidize medical care through favorable tax treatment. For the United States, such subsidization raises the fraction of health spending financed directly or indirectly by government to over 50 percent.

What are countries getting for the money they are spending on medical care? What is the relation between input and output? Spending on medical care provides a reasonably good measure of input, but, unfortunately, there is no remotely satisfactory objective measure of output. For the hospital segment, number of beds occupied may at first seem like an objective measure. However, improvements in medicine have included a reduction in the length of hospital stay required for various medical procedures or illnesses. So, fewer patient days may be a sign of greater, not lesser, output. The desired output of medical care is “good health.” But how can we quantify “good health,” and equally important, allow for the role that factors other than medical care – such as plentiful food, pure water, and protective clothing – play in producing “good health”?

The least objectionable measure I have been able to find is expected length of life at birth or at various later ages, though that too is a far from unambiguous measure of the output attributable to spending on medical care. The remarkable increase in life span in advanced countries during the past century reflects much more than spending on medical care proper. Moreover, it does not allow for changes in the quality of life-attempted measurement of which is still in its infancy.

Figure 1 (see Appendix) shows the relation in 1996 for the 29 OECD countries between the percentage of the gross domestic product spent on medical care and the expected length of life at birth for females.1 The relation is clearly positive, though very loose.2 The United States and Germany are clear outliers, ranking first and second in spending but twentieth and seventeenth in length of life. As another indication of looseness, nine countries spent between 7 and 8 percent of GDP on medicine. The group includes Japan, which has the highest expected length of life (83.6 years), and the Czech Republic, fourth from the bottom (77.3 years). Clearly, many factors other than spending on medical care affect expected length of life.

Exploring that relation more fully, however worthwhile a project, is not the purpose of this article, which is to examine the situation in the United States. I have presented the data on the OECD countries primarily to document the two (related?) respects in which the United States is an outlier: We spend a higher percentage of national income on medical care (and more per capita) than any other OECD country, and government finances a smaller fraction of that spending than all except Korea.

II. Why third-party payment?

Two simple observations are key to explaining both the high level of spending on medical care and the dissatisfaction with that spending. The first is that most payments to physicians or hospitals or other caregivers for medical care are made not by the patient but by a third party – an insurance company or employer or governmental body. The second is that nobody spends somebody else’s money as wisely or as frugally as he spends his own. These statements apply equally to other OECD countries. They do not by themselves explain why the United States spends so much more than other countries.

No third party is involved when we shop at a supermarket. We pay the supermarket clerk directly. The same for gasoline for our car, clothes for our back, and so on down the line. Why, by contrast, are most medical payments made by third parties? The answer for the United States begins with the fact that medical-care expenditures are exempt from the income tax if, and only if, medical care is provided by the employer. If an employee pays directly for medical care, the expenditure comes out of the employee’s income after income tax. If the employer pays for the employee’s medical care, the expenditure is treated as a tax-deductible expense for the employer and is not included as part of the employee’s income subject to income tax. That strong incentive explains why most consumers get their medical care through their employer or their spouse’s or their parents’ employer. In the next place, the enactment of Medicare and Medicaid in 1965 made the government a third-party payer for persons and medical care covered by those measures.

We have become so accustomed to employer-provided medical care that we regard it as part of the natural order. Yet it is thoroughly illogical. Why single out medical care? Food is more essential to life than medical care. Why not exempt the cost of food from taxes if provided by the employer? Why not return to the much-reviled company store when workers were in effect paid in kind rather than in cash?

The revival of the company store for medicine has less to do with logic than pure chance. It is a wonderful example of how one bad government policy leads to another. During World War II, the government financed much wartime spending by printing money while, at the same time, imposing wage and price controls. The resulting repressed inflation produced shortages of many goods and services, including labor. Firms competing to acquire labor at government-controlled wages started to offer medical care as a fringe benefit. That benefit proved particularly attractive to workers and spread rapidly.

Initially, employers did not report the value of a fringe benefit to the Internal Revenue Service as part of their workers’ wages. It took some time before the IRS realized what was going on. When it did, it issued regulations requiring employers to include the value of medical care as part of reported employees’ wages. By this time, workers had become accustomed to the tax exemption of that particular fringe benefit and made a big fuss. Congress responded by legislating that medical care provided by employers should be tax-exempt.

III. Effect of third-party payment on medical costs

The tax exemption of employer-provided medical care has two different effects, both of which raise health costs. First, it leads employees to rely on their employer, rather than themselves, to make arrangements for medical care. Yet employees are likely to do a better job of monitoring medical-care providers, because it is in their own interest, than is the employer or the insurance company or companies designated by the employer. Second, it leads employees to take a larger fraction of their total remuneration in the form of medical care than they would if spending on medical care had the same tax status as other expenditures.

If the tax exemption were removed, employees could bargain with their employers for a higher take-home pay in lieu of medical care and provide for their own medical care either by dealing directly with medical-care providers or by purchasing medical insurance. Removal of the tax exemption would enable governments to reduce the tax rate on income while raising the same total revenue. This hidden subsidy for medical care, currently more than $100 billion a year, is not included in reported figures on government health spending.

Extending the tax exemption to all medical care – as in the current limited provision for medical savings accounts and the proposals to make such accounts more widely available – would reduce reliance on third-party payment. But, by extending the hidden subsidy to all medical-care expenditures, it would increase the tendency of employees to take a larger portion of their remuneration in the form of medical care. (I will more fully discuss medical savings accounts in the conclusion.)

Enactment of Medicare and Medicaid provided a direct subsidy for medical care. The cost grew much more rapidly than originally estimated – as the cost of all handouts invariably do. Legislation cannot repeal the non-legislated law of demand and supply. The lower the price, the greater the quantity demanded; at a zero price, the quantity demanded becomes infinite. Some method of rationing must be substituted for price and that invariably means administrative rationing.

Figure 2 provides an estimate of the effect on medical costs of tax exemption and the subsequent enactment of Medicare and Medicaid. The top line in the chart is actual per capita spending on medical care expressed in constant 1992 prices, to allow for the effect of inflation. Spending multiplied more than 23-fold from 1919 to 1997, going from $155 per capita to $3,625. The bottom line shows what would have happened to per capita spending if it had continued to rise at the same rate as it did from 1919 to 1940 (3.1 percent per year). On that assumption, per capita spending would have risen to $1,751, instead of $3,625 by 1997, or less than half as much.3,4

To estimate the separate effects of tax exemption and of Medicare and Medicaid, the second line shows what would have happened to spending if, after Medicare and Medicaid were enacted, spending had continued to rise at the same rate as it did from 1946 to 1965 (4 percent per year). The segment between the two bottom lines shows the effect of tax exemption; the segment between the two top lines shows the effect of the enactment of Medicare and Medicaid. According to these estimates, tax exemption accounts for 57 percent of the increase in cost; Medicare and Medicaid, 43 percent.

Figure 3 presents a different breakdown of the cost of medical care: between the part paid directly by the government and the part paid privately. As the figure shows, the government share has been growing over the whole period. Government’s share went from one-eighth of the total in 1919 to nearly a quarter in 1946 to a quarter in 1965 to nearly half in 1997. The rise in the government’s share has been accompanied by centralization of spending – from primarily by state and local governments to primarily by the federal government. We are headed toward completely socialized medicine and are already halfway there, if in addition to direct costs, we include indirect tax subsidies.

Expressed as a fraction of national income, spending on medical care went from 3 percent of the national income in 1919 to 4.5 percent in 1946, to 7 percent in 1965 to a mind-boggling 17 percent in 1997.5 No other country in the world approaches that level of spending as a fraction of national income no matter how its medical care is organized. The change in the role of medical care in the U.S. economy is truly breathtaking. To illustrate, in 1946, seven times as much was spent on food, beverages, and tobacco as on medical care; in 1996, 50 years later, more was spent on medical care than on food, beverages, and tobacco. In 1946, twice as much was spent on transportation as on medical care; in 1996, one-and-a-half times as much was spent on medical care as on transportation.

IV. The changing meaning of insurance

Employer financing of medical care has caused the term “insurance” to acquire a rather different meaning in medicine than in most other contexts. We generally rely on insurance to protect us against events that are highly unlikely to occur but involve large losses if they do occur – major catastrophes, not minor regularly recurring expenses. We insure our houses against loss from fire, not against the cost of having to cut the lawn. We insure our cars against liability to others or major damage, not against having to pay for gasoline. Yet in medicine, it has become common to rely on insurance to pay for regular medical examinations and often for prescriptions.

This is partly a question of the size of the deductible and the co-payment, but it goes beyond that. “Without medical insurance” and “without access to medical care” have come to be treated as nearly synonymous. Moreover, the states and the federal government have increasingly specified the coverage of insurance for medical care to a detail not common in other areas. The effect has been to raise the cost of insurance and to limit the options open to individuals. Many, if not most, of the “medically uninsured” are persons who for one reason or another do not have access to employer-provided medical care and are not willing to pay the cost of the only kinds of insurance contracts available to them.

If tax exemption for employer-provided medical care and Medicare and Medicaid had never been enacted, the insurance market for medical care would probably have developed as other insurance markets have. The typical form of medical insurance would have been catastrophic insurance – i.e., insurance with a very high deductible.

V. Bureaucratization and Gammon’s Law

Third-party payment has required the bureaucratization of medical care and, in the process, has changed the character of the relation between physicians or other caregivers and patients. A medical transaction is not simply between a caregiver and a patient; it has to be approved as “covered” by a bureaucrat and the appropriate payment authorized. The patient, the recipient of the medical care, has little or no incentive to be concerned about the cost – since it’s somebody else’s money. The caregiver has become, in effect, an employee of the insurance company or, in the case of Medicare and Medicaid, the government. The patient is no longer the one, and the only one, the caregiver has to serve. An inescapable result is that the interest of the patient is often in direct conflict with the interest of the caregiver’s ultimate employer. That has been manifest in public dissatisfaction with the increasingly impersonal character of medical care.

Some years ago, the British physician Max Gammon, after an extensive study of the British system of socialized medicine, formulated what he called “the theory of bureaucratic displacement.” In Health and Security, he observed that in “a bureaucratic system … increase in expenditure will be matched by fall in production…. Such systems will act rather like ‘black holes,’ in the economic universe, simultaneously sucking in resources, and shrinking in terms of ’emitted production.'” Gammon’s observations for the British system have their exact parallel in the partly socialized U.S. medical system. Here too input has been going up sharply relative to output. This tendency can be documented particularly clearly for hospitals, thanks to the availability of high quality data for a long period.

Before 1940, output, as measured by number of patient days per 1,000 population (equal to the number of occupied beds per 1,000 population) and input, as measured by cost per 1,000 population, both rose (input somewhat more than output presumably because of the introduction of more sophisticated and expensive treatments). The number of occupied beds per resident of the United States rose from 1929 to 1940 at the rate of 2.4 percent per year; the cost of hospital care per resident, adjusted for inflation, at 5 percent per year; and the cost per patient day, adjusted for inflation, at 2 percent per year.

The situation changed drastically after the war, as Figure 4 and the top part of Table 1 show. From 1946 to 1996, the number of beds per 1,000 population fell by more than 60 percent; the fraction of beds occupied, by more than 20 percent. In sharp contrast, input skyrocketed. Hospital personnel per occupied bed multiplied nine-fold, and cost per patient day, adjusted for inflation, an astounding 40-fold, from $30 in 1946 to $1,200 in 1996 (at 1992 prices). A major engine of these changes was the enactment of Medicare and Medicaid in 1965. A mild rise in input was turned into a meteoric rise; a mild fall in output, into a rapid decline. The 40-fold increase in the cost per patient day was converted into a 13-fold increase in hospital cost per resident of the United States by the sharp decline in output. Hospital days per person per year were cut by two-thirds, from three days in 1946 to an average of less than a day by 1996.

Taken by itself, the decline in hospital days is evidence of progress in medical science. A healthy population needs less hospitalization, and advances in science and medical technology have reduced the length of hospital stays and increased outpatient surgery. Progress in medical science may well explain most of the decline in output; it does not explain much, if any, of the rise in input per unit of output. True, medical machines have become more complex. However, in other areas where there has been great technical progress – whether it be agriculture or telephones or steel or automobiles or aviation or, most recently, computers and the Internet – progress has led to a reduction, not an increase, in cost per unit of output. Why is medicine an exception? Gammon’s law, not medical miracles, was clearly at work. The provision of medical care as an untaxed fringe benefit by employers, and then the federal government’s assumption of responsibility for hospital and medical care of the elderly and the poor, provided a fresh pool of money. And there was no shortage of takers. Growing costs, in turn, led to more regulation of hospitals and medical care, further increasing administrative costs, and leading to the bureaucratization that is so prominent a feature of medical care today.

Medicine is not the only area where this pattern has prevailed. Aside from defense and medicine, schooling is the only other major area of our society that is largely financed and administered by government, and here too Gammon’s law has clearly operated. Input per unit of output, however measured, has clearly been going up; output, especially if measured in terms of quality, has been going down, and dissatisfaction, as in medicine, is growing. The same may well be true also in defense. However, measuring output independently of input is even more baffling for defense than for medicine.

To return to medicine, hospital cost has risen as a percentage of total medical cost from 24 percent in 1946 to 32 percent half a century later. The cost of physician services is currently the second largest component of total medical cost. It too has risen sharply, though less sharply than hospital costs. In 1946, the cost of physician services exceeded the cost of hospital services. According to the estimates in Table 1, the cost of physician services has multiplied four-fold since 1946, the major rise coming after the adoption of Medicare and Medicaid in 1965.

Figure 5 shows what has happened to the number of physicians and their income. The number almost doubled, and the income per physician almost tripled over the half-century from 1946 to 1996. Both reflect the increase in funds available to finance medical care and the third-party character of payment. The demand for physician services went up, and income had to go up to attract additional physicians. Paradoxically, the attempt by third-party payers – particularly the federal government – to keep costs down has been at least partly self-defeating, because it took the form of imposing onerous rules and regulations on physicians. The resultant bureaucratization of medical practice has made the practice of medicine less attractive as an occupation to most actual and potential physicians, which increased the necessary rise in incomes. It has also reduced their productivity.

VI. Medical-care output

So much for input. What about output? What have we gotten in return for quadrupling the share of the nation’s income spent on medical care?

I have already referred to one component of output – days of hospital care per person per year. That has gone down from three days in 1946 to less than one in 1996. Insofar as the reduction reflects the improvements in medicine, it clearly is a good thing. However, it also reflects the pressure to keep hospital stays short in order to keep down cost. That this is not a good thing is clear from protests by patients, widespread enough to have led Congress to mandate minimum stays for some medical procedures.

The output of the medical-care industry that we are interested in is its contribution to better health. How can we measure better health in a reasonably objective way that is not greatly influenced by other factors? For example, if medical care enables people to live longer and healthier lives, we might expect that the fraction of persons aged 65 to 70 who continue to work would go up. In fact, of course, the fraction has gone down drastically – thanks to higher incomes reinforced by financial incentives from Social Security. With the same “if” we might expect the fraction of the population classified as disabled to go down, but that fraction has gone up, again not for reasons of health but because of government social security programs. And so I have found with one initially plausible measure after another – all of them are too contaminated by other factors to reflect the output of the medical-care industry.

As noted earlier, the least bad measure that I have been able to come up with is length of life, though that too is seriously contaminated by other factors – improvements in diet, housing, clothing, and so on generated by greater affluence, better garbage collection and disposal, the provision of purer water, and other governmental public-health measures. Wars, epidemics, and natural and man-made disasters have played a part. Even more important, the quality of life is as meaningful as the length of life. Perhaps the extensive research on aging currently underway will lead to a better measure than length of life.

Figures 6 and 7 present two different sets of data on expected length of life: Figure 6, expected length of life at birth; Figure 7, remaining length of life at age 65. Both cover the whole century, from 1900 to 1997, the last year for which I was able to get data. For Figure 6 the data are annual; for Figure 7, decennial until recent years. The two tell very different, but equally remarkable, stories.

Expected longevity went from 47 years in 1900 to 68 years in 1950, a truly remarkable rise that proceeded at a fairly steady rate, averaging four-tenths of a year per year. Public-health activities, such as those leading to cleaner water and air and better control of epidemics, played a major role in lengthening life, no doubt; but so too did improvements in medical practice and hospital care, particularly those leading to a sharp reduction in infant and maternal mortality. Whatever its source, the increase in longevity did not have any systematic relation to spending on medical care as a fraction of income. We have reasonably accurate data on spending only from 1929 on; crude data from 1919 on. Except for the deep depression years of 1932 and 1933, national health spending never exceeded 5 percent of national income, and from 1919 to 1948, varied between 3 and 5 percent, primarily as a result of wider swings in national income than in health spending.

The most striking feature of Figure 6 is the sharp slowdown in the increase in longevity after 1950. From 1950 on, longevity grew at less than half the rate that it grew from 1900 to 1950-averaging less than two-tenths of a year per year compared to the earlier four-tenths.6 In the first 50 years of the century, the life span increased by 21 years; in the next 47 years, by eight years. As in the first 50 years, the increase proceeded at a surprisingly steady pace. I have no good explanation for the shift from one trend to the other. I conjecture that it reflects the exhaustion by the end of World War II of the possibility of further major improvements from public-health activity. I leave it to scholars more knowledgeable about medicine than I to give a more satisfactory answer.

The later trend was accompanied, as the earlier one was not, by a major increase in spending as a fraction of national income. However, I attribute that increase in spending to the changes in the economic organization of medical care discussed earlier. I doubt that it is related as either cause or effect to the slowdown in the growth of longevity.

Data are much less readily available for longevity at age 65 than at birth, so I have resorted to the use of decennial estimates except for the most recent year. Figure 7 is almost the mirror image of Figure 6 – that is, the same picture reversed. Instead of first rising rapidly and then slowly, longevity at age 65 at first rose slowly and then rapidly. Until 1940, longevity rose at an average of only .025 years per year. Remaining years of life went from 12 – or to age 77 – in 1900 to 13 – or age 78 – in 1940. Then there was a sharp acceleration, and in the next 57 years, remaining years of life went up by an additional five years to 18 – or age 83, rising at the average rate of .085 years per year. Understandably, both the earlier and the later rates of growth in longevity at age 65 are much smaller than the comparable figures for longevity at birth. The remarkable phenomenon is the shift in trend around 1940, and the steadiness of the trend both before and after 1940.

Data for later years of life suggests that the steadiness of the trend in longevity at age 65 is not likely to continue. At these later ages, there has been a distinct slowing of increases in longevity since about 1980. At age 85, remaining years of life for females has not changed in the 17 years from 1980 to 1997. It was 6.4 years in both 1980 and 1997.7

What caused the change in the trend at age 65, and why was that change in the opposite direction from the change in the trend at birth, and why did it occur about 10 years earlier? Could it have been the emergence of penicillin and sulfa at around 1940 that explains the dating of the shift? No doubt many other advances in medicine, from the handling of blood pressure to the perfecting of open-heart surgery, the improved treatment of cancer, and the better understanding of diet were of special importance for preventing death at later ages. I am incompetent to judge these matters and their relative importance. But I have no doubt that one economic change also played an important role. That was the sharp improvement in the economic status of the elderly brought about by government transfer programs, notably Social Security. From being among the poorest groups in society, the elderly have become among the most affluent in the post-World War II period.

However interesting these speculations may be, they are a long way from providing an answer to the question with which we started this section, namely, “What have we gotten in return for quadrupling the share of the nation’s income spent on medical care?” The slowdown in the increase of longevity at birth started before tax exemption and Medicare had any effect on spending. Similarly, the acceleration in the increase in longevity at age 65 started 25 years before Medicare was enacted and showed no speedup thereafter. Perhaps better measures of the health of the population and various subgroups will show a relation to total spending. But on the evidence to date, it is hard to see that we have gotten much for that spending other than bureaucratization and widespread dissatisfaction with the economic organization of medical care.

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VII. The United States vs. other countries

Our steady movement toward reliance on third-party payment no doubt explains the extraordinary rise in spending on medical care in the United States. However, other advanced countries also rely on third-party payment, many or most of them to an even greater extent than we do. What explains our higher level of spending?

I must confess that despite much thought and scouring of the literature, I have no satisfactory answer. One clue is my estimate that if the pre-World War II system had continued – that is, if tax exemption and Medicare and Medicaid had never been enacted – expenditures on medical care would have amounted to less than half its current level, which would have put us near the bottom of the OECD list rather than at the top.

In terms of holding down cost, one-payer directly administered government systems, such as exist in Canada and Great Britain, have a real advantage over our mixed system. As the direct purchaser of all or nearly all medical services, they are in a monopoly position in hiring physicians and can hold down their remuneration, so that physicians earn much less in those countries than in the United States. In addition, they can ration care more directly – at the cost of long waiting lists and much dissatisfaction.8

In addition, once the whole population is covered, there is little political incentive to increase spending on medical care. In an insightful analysis of political entrepreneurship, W. Allen Wallis noted that

one of the ways politicians compete for votes is by offering to have the government provide new services. For an offer of a new service to have substantial electoral impact, the service ordinarily must be one that a large number of voters is familiar with, and in fact already use. The most effective innovations for a political entrepreneur to offer, therefore, are those whose effect is to transfer from individuals to the government the costs of services which are already in existence, not to alter appreciably the amount of the service reaching the people.9

Medicare, Medicaid, the political stress on the “uninsured,” and the current political pressure for government financing of prescriptions all exemplify this phenomenon. Once the bulk of costs have been taken over by government, as they have in most of the other OECD countries, the political entrepreneur has no additional groups to attract, and attention turns to holding down costs.

An additional factor is the tax treatment of private expenditures on medical care. In most countries, any private expenditure comes out of after-tax income. It does in the United States also, unless the medical care is provided by the employer. For this reason, the bulk of medical care is provided through employers, and private expenditures on medical care are decidedly higher than they would be if medical care, like food, clothing, and other consumer goods, had to be financed out of post-tax income. It is consistent with this view that Germany, the country second to the United States in the fraction of income spent on medical care, has a system in which the employer plays a central role in the provision of medical care and in which, so far as I have been able to determine, half of the cost comes out of pre-tax income, half out of post-tax income.

Our mixed system has many advantages in accessibility and quality of medical care, but it has produced a higher level of cost than would result from either wholly individual choice or wholly collective choice.

VIII. Medical savings accounts and beyond

The high cost and inequitable character of our medical-care system is the direct result of our steady movement toward reliance on third-party payment. A cure requires reversing course, reprivatizing medical care by eliminating most third-party payment, and restoring the role of insurance to providing protection against major medical catastrophes.

The ideal way to do that would be to reverse past actions: repeal the tax exemption of employer-provided medical care; terminate Medicare and Medicaid; deregulate most insurance; and restrict the role of the government, preferably state and local rather than federal, to financing care for the hard cases. However, the vested interests that have grown up around the existing system, and the tyranny of the status quo, clearly make that solution not feasible politically. Yet it is worth stating the ideal as a guide to judging whether proposed incremental changes are in the right direction.

Most changes made in the final decade of the twentieth century have been in the wrong direction. Despite rejection of the sweeping socialization of medicine proposed by Hillary Clinton, subsequent incremental changes have expanded the role of government, increased regulation of medical practice, and further constrained the terms of medical insurance, thereby raising its cost and increasing the fraction of individuals who choose or are forced to go without insurance.

There is one exception, which, though minor in current scope, is pregnant of future possibilities. The Kassebaum-Kennedy bill, passed in 1996 after lengthy and acrimonious debate, included a narrowly limited four-year pilot program authorizing medical savings accounts. A medical savings account enables individuals to deposit tax-free funds in an account usable only for medical expense, provided they have a high-deductible insurance policy that limits the maximum out-of-pocket expense. As noted earlier, it eliminates third-party payment except for major medical expenses and is thus a movement very much in the right direction. By extending tax exemption to all medical expenses whether paid by the employer or not, it eliminates the present bias in favor of employer-provided medical care. That too is a move in the right direction. However, the extension of tax exemption increases the bias in favor of medical care compared to other household expenditures. This effect would tend to increase the implicit government subsidy for medical care, which would be a step in the wrong direction.10 But, on balance, given how large a fraction of current medical expenditures are exempt, it seems likely that the net effect of widely available and flexible medical savings accounts would be very much in the right direction.

However, the current pilot program is neither widely available nor flexible. The act limits the number of medical savings accounts to no more than 750,000 policies, available only to the self-employed who are uninsured and employees at firms with 50 or fewer employees. Moreover, the act specifies the precise terms of the medical savings account and the associated insurance. Finally, at the end of four years (the year 2000) Congress will have to vote to continue or change the program. (Those who signed up in the first four years would be entitled to continue their accounts even if Congress terminates the program.) A number of representatives and senators have indicated their intention to introduce bills to extend and widen the availability of medical savings accounts.

Prior to this pilot project, a number of large companies (e.g., Quaker Oats, Forbes, Golden Rule Insurance Co.) had offered their employees the choice of a medical savings account instead of the usual low-deductible employer-provided insurance policy. In each case, the employer purchased a high-deductible major medical insurance policy for the employee and deposited a stated sum, generally about half of the deductible, in a medical savings account for the employee. That sum could be used by the employee for medical care. Any part not used during the year was the property of the employee and had to be included in taxable income. Despite this loss of tax exemption, this alternative has generally been very popular with both employers and employees. It has reduced costs for the employer and empowered the employee, eliminating much third-party payment.

Medical savings accounts offer one way to resolve the growing financial and administrative problems of Medicare and Medicaid. Each current participant could be given the alternative of continuing with present arrangements or receiving a high-deductible major medical insurance policy and a specified deposit in a medical savings account. New entrants would be required to accept the alternative. Many details would have to be worked out: the size of the deductible and the deposit in the medical savings account, the size of any co-payment, and whether additional medical spending would be tax-exempt. Yet it seems clear from private experience that a program along these lines would be less expensive and bureaucratic than the current system, and more satisfactory to the participants. In effect, it would be a way to voucherize Medicare and Medicaid. It would enable participants to spend their own money on themselves for routine medical care and medical problems, rather than having to go through HMOs and insurance companies, while at the same time providing protection against medical catastrophes.

An interesting and instructive experiment with medical savings accounts has recently taken place in South Africa, as explained by Shaun Matisonn of the National Center for Policy Analysis:

For most of the last decade [the nineties] – under the leadership of Nelson Mandela – South Africa enjoyed what was probably the freest market for health insurance anywhere in the world…. South Africa’s insurance regulations were and are sufficiently flexible to allow the type of innovation and experimentation that American law stifles…. The result has been remarkable…. In just five years, MSA plans captured half the market, proving that they are popular and meet consumer needs as well as or better than rival products. South Africa’s experience with MSAs shows that MSA holders save money, spending less on discretionary items in a way that does not increase the cost of inpatient care. Contrary to allegations by some critics, the South African experience also shows that MSAs attract individuals of all different ages and different degrees of health.

A more radical reform would, first, end both Medicare and Medicaid, at least for new entrants, and replace them by providing every family in the United States with catastrophic insurance – i.e., a major medical policy with a high deductible. Second, it would end tax exemption of employer-provided medical care. And third, it would remove the restrictive regulations that are now imposed on medical insurance – hard to justify with universal catastrophic insurance.

This reform would solve the problem of the currently medically uninsured, eliminate most of the bureaucratic structure, free medical practitioners from an increasingly heavy burden of paperwork and regulation, and lead many employers and employees to convert employer-provided medical care into a higher cash wage. The taxpayer would save money because total government costs would plummet. The family would be relieved of one of its major concerns – the possibility of being impoverished by a major medical catastrophe – and most could readily finance the remaining medical costs. Families would once again have an incentive to monitor the providers of medical care and to establish the kind of personal relations with them that were once customary. The demonstrated efficiency of private enterprise would have a chance to improve the quality and lower the cost of medical care. The first question asked of a patient entering a hospital might once again become “What’s wrong?” and not “What’s your insurance?”

While so radical a reform is almost surely not politically feasible at the moment, it may become so as dissatisfaction with the current arrangements continue to grow. And again, it gives a standard – if less than an ideal one – against which to judge incremental changes.


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Notes

1 Females only are included to remove one source of irrelevant difference among countries. In general, females tend to have a longer expected length of life than males, and countries differ in the ratio of males to females. The correlation of expected length of life with per capita spending on medical care in dollars is almost the same as with percent of GDP spent on medical care.

2 The correlation is partly spurious because percent spent tends to be positively correlated with real GDP, and real GDP is positively correlated with length of life for given percent spent. However, the partial correlation of percent spent with length of life is statistically significant and higher than the partial correlation of real GDP with length of life.

3 In an extensive study, the Rand Corporation compared the effect of different health-insurance plans, varying from one with no deductible and no co-payment – that is, free medical care – to one with 95 percent co-payment, very close to complete private responsibility. In his summary of the results, Joseph Newhouse concluded that, “had there been no MDE [maximum deductible expense], demand on the 95 percent coinsurance plan would have been a little over half as large as on the free care plan,” and an accompanying table gives 55 percent as the actual fraction.

The 1997 value of the extrapolated trend from 1919-1940 is 48 percent of on a completely independent set of data. See Joseph P. Newhouse, Free for All? Lessons from Rand Health Insurance Experiment (Harvard University Press, 1993), p. 458.

4 Had this been the total expenditure in 1996, the United States would have ranked twenty-first, rather than first, among the 29 OECD countries in fraction of income spent on medical care.

5 The figure of 14 percent referred to earlier was from OECD data; it referred to 1996 rather than 1997 and to percent of gross domestic product, not national income.

6 I have used data for the population as a whole, although data are also available by sex and race. There are minor differences between the sexes and between the races, but the broad picture is essentially the same for all, so I have not thought it worthwhile to present more detailed data, as I did in Input and Output in Medical Care (Stanford: Hoover Institution Press, 1992).

7 I am indebted to James Fries, a leading expert on aging, for calling this phenomenon to my attention. The data cited are from Metropolitan Life Insurance Statistical Bulletin, Oct.-Dec., 1998.

8 See Cynthia Ramsay and Michael Walker, Critical Issues Bulletin: Waiting Your Turn, 7th edition (Vancouver, B.C., Canada: Fraser Institute, 1997).

9 W. Allen Wallis, An Overgoverned Society (Free Press, 1976), p. 256.

10 Whether medical savings accounts increase or decrease the government subsidy to medical care, including the hidden tax subsidy of tax exemption, depends on whether they raise or lower total medical expenditures exempted from tax. First-party payment works toward reducing such expenditures by giving consumers an incentive to economize and by reducing administrative costs. The availability of tax exemption to a wider class of medical expenses has the opposite effect. Such experience as we have with medical savings accounts or their equivalent suggests that the first effect is highly significant and is likely to overwhelm the second. However, this issue deserves more systematic investigation.

Milton Friedman is a senior research fellow at the Hoover Institution and author (with Rose D. Friedman) of Two Lucky People (University of Chicago Press, 1998). He received the Nobel Prize for Economic Science in 1976.

Milton Friedman – Health Care Reform (1992) pt 3/4

Milton Friedman – Health Care Reform (1992) pt 4/4

_____________________

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FRIEDMAN FRIDAY Article by Peter Robinson 6/19/2009 @ 12:01AM Medical Analysis By Milton Friedman

Milton Friedman on Medical Care (Full Lecture)

Published on Feb 2, 2014

I have written about Obamacare over and over again on this blog. Dan Mitchell has shared many funny cartoons about Obamacare too. Milton Friedman has spoken out about government healthcare many times in the past and his film series FREE TO CHOOSE is on You Tube and I encourage you to watch it. It is clear that the federal government debt is growing so much that it is endangering us because if things keep going like they are now we will not have any money left for the national defense because we are so far in debt as a nation.

We have been spending so much on our welfare state through food stamps and other programs that I am worrying that many of our citizens are becoming more dependent on government and in many cases they are losing their incentive to work hard because of the welfare trap the government has put in place. Other nations in Europe have gone down this road and we see what mess this has gotten them in. People really are losing their faith in big government and they want more liberty back. It seems to me we have to get back to the founding  principles that made our country great.  We also need to realize that a big government will encourage waste and corruption. Also raising taxes on the job creators is a very bad idea too. The Laffer Curve clearly demonstrates that when the tax rates are raised many individuals will move their investments to places where they will not get taxed as much.

In 1980 I read the book FREE TO CHOOSE by Milton Friedman and it really enlightened me a tremendous amount.  I suggest checking out these episodes and transcripts of Milton Friedman’s film series FREE TO CHOOSE: “The Failure of Socialism” and “The Anatomy of a Crisis” and “What is wrong with our schools?”  and “Created Equal”  and  From Cradle to Grave, and – Power of the Market.

Milton Friedman – Health Care Reform (1992) pt 1/4

6/19/2009 @ 12:01AM

Medical Analysis By Milton Friedman

President Obama, the press, all the Democrats and a fair number of the Republicans in Congress share the same assumption about health care. Whatever you believe should be done about the problem, it sure is complicated.

Yet one man figured it out.

In 2001 the economist Milton Friedman read up on health care, discovered that the inefficiencies in our system trace back to a single policy mistake, worked out a policy test that would help us correct it and then described his findings in a few thousand words of plain English.

Since the end of the Second World War, Friedman explained, medical care in the U.S. has displayed three features: technological advances, increases in spending and rising dissatisfaction.

The first of the three was common to one sector of the economy after another. Agriculture, manufacturing, electronics, communications–all had experienced technological progress. Yet the two final features proved unique to health care. While we were paying less and getting more when buying food or computers, in health care the opposite was happening.

Why?

Because, Friedman saw, most payments for medical care are made not by the patients who receive the care but by third parties, typically employers. Since, in Friedman’s phrase, “nobody spends somebody else’s money as wisely as he spends his own,” this third-payer system by its very nature introduces inefficiencies throughout the health care system.

The reason for this wasteful third-party system? The tax code. Money spent on health care is exempt from the income tax only if the health care is provided through an employer. “We have become so accustomed to employer-provided medical care,” Friedman wrote, “that we regard it as part of the natural order. Yet it is thoroughly illogical.”

The policy mistake that produced this illogical mess took place during World War II, when the government imposed wage controls. Unable to compete for workers by paying them more, employers began providing medical care, and the new benefit spread rapidly.

When the Internal Revenue Service caught on, requiring employers to include the value of medical benefits as part of the wages they reported, workers, who had grown accustomed to the benefits, protested. Congress responded with legislation that made employer-provided medical benefits tax-exempt.

By the time the 1960s arrived, Americans were used to having third parties pay their medical bills. Thus the enactment of Medicare and Medicaid–under which the government, rather than employers, acted as the third party–seemed perfectly reasonable.

Friedman wrote: “Third-party payment has required the bureaucratization of medical care. … A medical transaction is not simply between a caregiver and a patient; it has to be approved as ‘covered’ by a bureaucrat. … The patient has little … incentive to be concerned about the cost since it’s somebody else’s money. The caregiver has become, in effect, an employee of the insurance company or, in the case of Medicare and Medicaid, of the government. … An inescapable result is that the interest of the patient is often in direct conflict with the interest of the caregiver’s ultimate employer.”

In that one paragraph of under 100 words, a diagnosis of our ailment.

What should we do about it? Ideally, Friedman argued, we should reverse the mistake that started all the trouble, repealing the tax exemption of employer-provided medical care. Yet Friedman was a realist. Vested interests, he recognized, would make such a radical reform impossible. Instead he believed we should seek incremental changes, asking of each proposal simply whether it would move health care “in the right direction.”

Expanding savings accounts that allow individuals control over relevant spending, Friedman argued, would move health care in the right direction. So would extending the tax exemption to all medical expenses, whether they are paid by employers or individuals. A “sweeping socialization of medicine [such as that] proposed by Hilary Clinton”–and, now, by Barack Obama–would not.

Wherever possible, reduce the role of third parties. Increase the autonomy of individuals. Get the government and vast, bureaucratic insurance companies out of the way, permitting the free market to work its effects in health care, just as it does in virtually every other sector of the economy.

That’s not too complicated, now, is it?

Peter Robinson, a research fellow at the Hoover Institution at Stanford University and contributor to RobinsonandLong.com, writes a weekly column for Forbes.

Milton Friedman – Health Care Reform (1992) pt 2/4

Milton Friedman – Health Care Reform (1992) pt 3/4

Milton Friedman – Health Care Reform (1992) pt 4/4

_____________________

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FRIEDMAN FRIDAY Taxmageddon and Obamacare: What Would Milton Friedman Say? Rich Tucker / @RichardBTucker / July 31, 2012

Milton Friedman on Medical Care (Full Lecture)

Published on Feb 2, 2014

Taxmageddon and Obamacare: What Would Milton Friedman Say?

“I am in favor of cutting taxes under any circumstances and for any excuse, for any reason, whenever it’s possible,” economist Milton Friedman once said. So the Nobel Prize winner would undoubtedly be concerned this year asTaxmageddon, the one-year $494 billion tax increase that is poised to strike the economy in January approaches.

Friedman’s opposition to taxes was based on the idea that governments were inefficient in everything they did. “If you put the federal government in charge of the Sahara Desert, in five years there’d be a shortage of sand,” he quipped. By limiting government resources, he hoped to limit the size and scope of government.

Instead, the coming of Taxmageddon would make the federal government even more intrusive and influential. As such, it’s already slowing job creation, generating economic uncertainty, and reducing productive investment.

Friedman would also warn us about the dangers of Obamacare.

“The great achievements of civilization have not come from government bureaus,” he explained. “There is no alternative way so far discovered at improving the lot of ordinary people that can hold a candle to the productive activities that are unleashed by a free enterprise system.”

Yet Obamacare takes our health care system in exactly the wrong direction. Instead of putting people in charge of their own health care decisions, “it imposes several costly new mandates and restrictions on health insurers and providers that will raise health care costs and therefore premiums.” Further,“Obamacare raises taxes and adds 17 new taxes or penalties that will affect all Americans.”

Friedman warned that government involvement would lead to socialized medicine and that it would be “very much against the interests of patients, of physicians, and of other health care personnel.” Why? Because “you invariably get lower quality and a lower quantity of medical care.”

In one of his most famous quotes, Friedman pointed out that “there’s no free lunch.” Every government “benefit” is paid for by somebody.

Friedman would have been 100 years old today. His wise counsel is missed, but the lessons he taught apply just as much to today’s debates as they did during his lifetime.

___________

I have written about Obamacare over and over again on this blog. Dan Mitchell has shared many funny cartoons about Obamacare too. Milton Friedman has spoken out about government healthcare many times in the past and his film series FREE TO CHOOSE is on You Tube and I encourage you to watch it. It is clear that the federal government debt is growing so much that it is endangering us because if things keep going like they are now we will not have any money left for the national defense because we are so far in debt as a nation.

We have been spending so much on our welfare state through food stamps and other programs that I am worrying that many of our citizens are becoming more dependent on government and in many cases they are losing their incentive to work hard because of the welfare trap the government has put in place. Other nations in Europe have gone down this road and we see what mess this has gotten them in. People really are losing their faith in big government and they want more liberty back. It seems to me we have to get back to the founding  principles that made our country great.  We also need to realize that a big government will encourage waste and corruption. Also raising taxes on the job creators is a very bad idea too. The Laffer Curve clearly demonstrates that when the tax rates are raised many individuals will move their investments to places where they will not get taxed as much.

In 1980 I read the book FREE TO CHOOSE by Milton Friedman and it really enlightened me a tremendous amount.  I suggest checking out these episodes and transcripts of Milton Friedman’s film series FREE TO CHOOSE: “The Failure of Socialism” and “The Anatomy of a Crisis” and “What is wrong with our schools?”  and “Created Equal”  and  From Cradle to Grave, and – Power of the Market.

Milton Friedman – Health Care Reform (1992) pt 1/4

Milton Friedman – Health Care Reform (1992) pt 2/4

Milton Friedman – Health Care Reform (1992) pt 3/4

Milton Friedman – Health Care Reform (1992) pt 4/4

_____________________

Related posts:

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__________ Enzi statement on the Supreme Court’s King Vs. Burwell decision 5 Takeaways From Today’s Supreme Court Ruling on Obamacare Wicker Comments on King v Burwell Supreme Court Decision Senator Lankford Discusses the King v. Burwell Supreme Court Decision Congressman Steve King Response to SCOTUS King v. Burwell Ruling Obamacare and the Odious Anti-Constitutionalism of […]

Open letter to President Obama (Part 718) Cartoonists Go to War against Obamacare

Open letter to President Obama (Part 718) (Emailed to White House on 6-25-13.) President Obama c/o The White House 1600 Pennsylvania Avenue NW Washington, DC 20500 Dear Mr. President, I know that you receive 20,000 letters a day and that you actually read 10 of them every day. I really do respect you for trying to get […]

The Region – Banking and Policy Issues Magazine – Interview with Milton Friedman June 1992

______ Milton Friedman’s Free to Choose (1980), episode 3 – Anatomy of a Crisis. part 1 The Region – Banking and Policy Issues Magazine – Interview with Milton Friedman June 1992 In his new book, Money Mischief, economist Milton Friedman compares inflation to alcoholism; blames the rise of Chinese communism, in large part, on an […]

NEW RIVER MEDIA INTERVIEW WITH: MILTON FRIEDMAN Professor Emeritus of Economics, University of Chicago Senior Fellow, Hoover Institution

______ Milton Friedman – A Conversation On Minimum Wage Milton Friedman Interview Milton Friedman is Professor Emeritus of Economics at the University of Chicago and Senior Fellow at the Hoover Institution.Dr. Friedman received the 1976 Nobel Memorial Prize for Economic Science. Member of the research staff of the National Bureau of Economic Research from 1937 […]

Walter E. Williams: “Milton Friedman was an economist’s economist” Wednesday, Dec. 6 2006 1

________ Milton Friedman on Donahue – 1979 Uploaded on Aug 26, 2009 Dr. Milton Friedman, Nobel Laureate, promoting “Free to Choose” on the show Donahue. Walter E. Williams: Milton Friedman was an economist’s economist Print Font [+] [-] Leave a comment » By Walter E. Williams Published: Wednesday, Dec. 6 2006 12:00 a.m. MST Walter […]

FRIEDMAN FRIDAY 40 Years Later: Milton Friedman’s Legacy in Chile “Chilean Miracle” Struck a Blow against Communism When Needed Most José Niño April 22, 2015

_______ José Niño José Niño is a graduate student based in Santiago, Chile. A citizen of the world, he has lived in Venezuela, Colombia, and the United States. He is currently an international research analyst with the Acton Circle of Chile. Follow@JoseAlNino. 40 Years Later: Milton Friedman’s Legacy in Chile “Chilean Miracle” Struck a Blow […]

FRIEDMAN FRIDAY Milton Friedman came up with the NEGATIVE INCOME TAX

____ Milton Friedman – The Negative Income Tax The Conservative Case for a Guaranteed Basic Income NOAH GORDON AUG 6, 2014 Creating a wage floor is an effective way to fight poverty—and it would reduce government spending and intrusion. Swiss backers of a minimum income spread out coins in Bern. Denis Balibouse/Reuters Last week, my […]

FRIEDMAN FRIDAY Which Fed Bill Would Milton Friedman Have Liked? Posted on March 10, 2015by John Taylor

________________ Which Fed Bill Would Milton Friedman Have Liked? Posted on March 10, 2015by John Taylor Writing last week on the Cato at Liberty blog, Steve Hanke argued that Milton Friedman would have supported the “Audit the Fed” bill recently introduced in the Senate.  Steve’s reasoning is based on Friedman’s 1962 essay “Should there be an […]

5 myths that conceal reality by Milton Friedman

A great speech below: Here are the myths:Robber Baron Myth, The Cause of Great Depression Myth, The Demand for Government Service Myth, The Free Lunch Smith, and The Robin Hood Myth. 1) the Robber Baron Myth, 2) the Great Depression Myth, 3) the Demand for Government Service Myth, 4) the Free Lunch Myth, and 5) […]

FRIEDMAN FRIDAY SEPTEMBER 4, 2006 An Interview with Milton Friedman

_______________ FEATURED ARTICLE | SEPTEMBER 4, 2006 An Interview with Milton Friedman Milton Friedman* I recently sat down with Milton Friedman, a few days before his 94th birthday, to discuss the impact of two of his most important contributions to economics and liberty: A Monetary History of the United States, 1870-1960 [co-written] with Anna Schwartz, […]

FRIEDMAN FRIDAY The Social Responsibility of Business is to Increase its Profits by Milton Friedman The New York Times Magazine, September 13, 1970.

Milton Friedman on Self-Interest and the Profit Motive 1of2 Milton Friedman on Self-Interest and the Profit Motive 2of2 The Social Responsibility of Business is to Increase its Profits by Milton FriedmanThe New York Times Magazine, September 13, 1970. Copyright @ 1970 by The New York Times Company. When I hear businessmen speak eloquently about the […]

FRIEDMAN FRIDAY Levin on Milton Friedman: ‘One Thing to Have Free Immigration to Jobs, Another for Welfare’ By Michael Morris | January 16, 2015

____________ Levin on Milton Friedman: ‘One Thing to Have Free Immigration to Jobs, Another for Welfare’ By Michael Morris | January 16, 2015 | 5:12 PM EST During his show on January 15, 2015, Nationally syndicated radio host Mark Levin recalled the famed economist Milton Friedman and explored an important reason why open immigration, despite […]

FRIEDMAN FRIDAY A Way Out of Soviet-Style Health Care Solzhenitsyn’s prophetic warning about the depersonalization of medicine. By MILTON FRIEDMAN Updated March 20, 2010 12:01 a.m. ET

Milton Friedman – Health Care Reform (1992) pt 1/4

Milton Friedman – Health Care Reform (1992) pt 2/4

A Way Out of Soviet-Style Health Care

Solzhenitsyn’s prophetic warning about the depersonalization of medicine.

Editor’s note: The following is excerpted from an article with the same headline by Nobel Prize winning economist Milton Friedman that was published in the Wall Street Journal on April 17, 1996. Friedman died in 2006. A related editorial appears nearby:

In a chapter in his novel “The Cancer Ward” titled “The Old Doctor,” Alexander Solzhenitsyn compares “private medical practice” with “universal, free, public health service” through the words of an elderly physician whose practice predated 1918. . .

Mr. Solzhenitsyn himself had no personal experience on which to base his account and yet, in what I have long regarded as a striking example of creative imagination, his character presents an accurate and moving vision. The essence of that vision is the consensual relation between the patient and the physician. The patient was free to choose his physician, and the physician free to accept or reject the patient.

In Mr. Solzhenitsyn’s words, “among all these persecutions [of the old doctor] the most persistent and stringent had been directed against the fact that Doctor Oreschenkov clung stubbornly to his right to conduct a private medical practice, although this was forbidden.”

In the words of Dr. Oreschenkov in conversation with Lyudmila Afanasyevna, a longtime patient and herself a physician in the cancer ward: “In general, the family doctor is the most comforting figure in our lives. But he has been cut down and foreshortened. . . . Sometimes it’s easier to find a wife than to find a doctor nowadays who is prepared to give you as much time as you need and understands you completely, all of you.”

Lyudmila Afanasyevna: “All right, but how many of these family doctors would be needed? They just can’t be fitted into our system of universal, free, public health services.”

Dr. Oreschenkov: “Universal and public—yes, they could. Free, no.”

Lyudmila Afanasyevna: “But the fact that it is free is our greatest achievement.”

Dr. Oreschenkov: “Is it such a great achievement? What do you mean by ‘free’? The doctors don’t work without pay. It’s just that the patient doesn’t pay them, they’re paid out of the public budget. The public budget comes from these same patients. Treatment isn’t free, it’s just depersonalized. If the cost of it were left with the patient, he’d turn the ten rubles over and over in his hands. But when he really needed help he’d come to the doctor five times over. . . .

“Is it better the way it is now? You’d pay anything for careful and sympathetic attention from the doctor, but everywhere there’s a schedule, a quota the doctors have to meet; next! . . . And what do patients come for? For a certificate to be absent from work, for sick leave, for certification for invalids’ pensions: and the doctor’s job is to catch the frauds. Doctor and patient as enemies—is that medicine?”

“Depersonalized,” “doctor and patient as enemies”—those are the key phrases in the growing body of complaints about health maintenance organizations and other forms of managed care. In many managed care situations, the patient no longer regards the physician who serves him as “his” or “her” physician responsible primarily to the patient; and the physician no longer regards himself as primarily responsible to the patient. His first responsibility is to the managed care entity that hires him. He is not engaged in the kind of private medical practice that Dr. Oreschenkov valued so highly.

For the first 30 years of my life, until World War II, that kind of practice was the norm. Individuals were responsible for their own medical care. They could pay for it out-of-pocket or they could buy insurance. “Sliding scale” fees plus professional ethics assured that the poor got care. On entry to a hospital, the first question was “What’s wrong?” not “What is your insurance?” It may be that some firms provided health care as a benefit to their workers, but if so it was the exception not the rule.

The first major change in those arrangements was a byproduct of wage and price controls during World War II. Employers, pressed to find more workers under wartime boom conditions but forbidden to offer higher money wages, started adding benefits in kind to the money wage. Employer-provided medical care proved particularly popular. As something new, it was not covered by existing tax regulations, so employers treated it as exempt from withholding tax.

It took a few years before the Internal Revenue Service got around to issuing regulations requiring the cost of employer-provided medical care to be included in taxable wages. That aroused a howl of protest from employees who had come to take tax exemption for granted, and Congress responded by exempting employer- provided medical care from both the personal and the corporate income tax.

Because private expenditures on health care are not exempt from income tax, almost all employees now receive health care coverage from their employers, leading to problems of portability, third party payment and rising costs that have become increasingly serious. Of course, the cost of medical care comes out of wages, but out of before-tax rather than after-tax wages, so that the employee receives what he or she regards as a higher real wage for the same cost to the employer.

A second major change was the enactment of Medicare and Medicaid in 1965. These added another large slice of the population to those for whom medical care, though not completely “free,” thanks to deductibles and co-payments, was mostly paid by a third party, providing little incentive to economize on medical care. The resulting dramatic rise in expenditures on medical care led to the imposition of controls on both patients and suppliers of medical care in a futile attempt to hold down costs, further undermining the kind of private practice that Dr. Oreschenkov “cherished most in his work.”

The best way to restore freedom of choice to both patient and physician and to control costs would be to eliminate the tax exemption of employer-provided medical care. However, that is clearly not feasible politically. The best alternative available is to extend the tax exemption to all expenditures on medical care, whether made by the patient directly or by employers, to establish a level playing field, in terms of the currently popular cliche.

Many individuals would then find it attractive to negotiate with their employer for a higher cash wage in place of employer-financed medical care. With part or all of the higher cash wage, they could purchase an insurance policy with a very high deductible, i.e., a policy for medical catastrophes, which would be decidedly cheaper than the low-deductible policy their employer had been providing to them, and deposit all or part of the difference in a special “medical savings account” that could be drawn on only for medical purposes. Any amounts unused in a particular year could be allowed to accumulate without being subject to tax, or could be withdrawn with a tax penalty or for special purposes, as with current Individual Retirement Accounts—in effect, a medical IRA. Many employers would find it attractive to offer such an arrangement to their employees as an option. . . .

Milton Friedman – Health Care Reform (1992) pt 3/4

Milton Friedman – Health Care Reform (1992) pt 4/4

Milton Friedman on Medical Care (Full Lecture)

Published on Feb 2, 2014

I have written about Obamacare over and over again on this blog. Dan Mitchell has shared many funny cartoons about Obamacare too. Milton Friedman has spoken out about government healthcare many times in the past and his film series FREE TO CHOOSE is on You Tube and I encourage you to watch it. It is clear that the federal government debt is growing so much that it is endangering us because if things keep going like they are now we will not have any money left for the national defense because we are so far in debt as a nation.

We have been spending so much on our welfare state through food stamps and other programs that I am worrying that many of our citizens are becoming more dependent on government and in many cases they are losing their incentive to work hard because of the welfare trap the government has put in place. Other nations in Europe have gone down this road and we see what mess this has gotten them in. People really are losing their faith in big government and they want more liberty back. It seems to me we have to get back to the founding  principles that made our country great.  We also need to realize that a big government will encourage waste and corruption. Also raising taxes on the job creators is a very bad idea too. The Laffer Curve clearly demonstrates that when the tax rates are raised many individuals will move their investments to places where they will not get taxed as much.

In 1980 I read the book FREE TO CHOOSE by Milton Friedman and it really enlightened me a tremendous amount.  I suggest checking out these episodes and transcripts of Milton Friedman’s film series FREE TO CHOOSE: “The Failure of Socialism” and “The Anatomy of a Crisis” and “What is wrong with our schools?”  and “Created Equal”  and  From Cradle to Grave, and – Power of the Market.

_____________________

Related posts:

Dan Mitchell on Obamacare Supreme Court Decision: “I’m disgusted that the Supreme Court once again has decided to put politics above the Constitution!” (Includes lots of videos and cartoons)

__________ Enzi statement on the Supreme Court’s King Vs. Burwell decision 5 Takeaways From Today’s Supreme Court Ruling on Obamacare Wicker Comments on King v Burwell Supreme Court Decision Senator Lankford Discusses the King v. Burwell Supreme Court Decision Congressman Steve King Response to SCOTUS King v. Burwell Ruling Obamacare and the Odious Anti-Constitutionalism of […]

Open letter to President Obama (Part 718) Cartoonists Go to War against Obamacare

Open letter to President Obama (Part 718) (Emailed to White House on 6-25-13.) President Obama c/o The White House 1600 Pennsylvania Avenue NW Washington, DC 20500 Dear Mr. President, I know that you receive 20,000 letters a day and that you actually read 10 of them every day. I really do respect you for trying to get […]

The Region – Banking and Policy Issues Magazine – Interview with Milton Friedman June 1992

______ Milton Friedman’s Free to Choose (1980), episode 3 – Anatomy of a Crisis. part 1 The Region – Banking and Policy Issues Magazine – Interview with Milton Friedman June 1992 In his new book, Money Mischief, economist Milton Friedman compares inflation to alcoholism; blames the rise of Chinese communism, in large part, on an […]

NEW RIVER MEDIA INTERVIEW WITH: MILTON FRIEDMAN Professor Emeritus of Economics, University of Chicago Senior Fellow, Hoover Institution

______ Milton Friedman – A Conversation On Minimum Wage Milton Friedman Interview Milton Friedman is Professor Emeritus of Economics at the University of Chicago and Senior Fellow at the Hoover Institution.Dr. Friedman received the 1976 Nobel Memorial Prize for Economic Science. Member of the research staff of the National Bureau of Economic Research from 1937 […]

Walter E. Williams: “Milton Friedman was an economist’s economist” Wednesday, Dec. 6 2006 1

________ Milton Friedman on Donahue – 1979 Uploaded on Aug 26, 2009 Dr. Milton Friedman, Nobel Laureate, promoting “Free to Choose” on the show Donahue. Walter E. Williams: Milton Friedman was an economist’s economist Print Font [+] [-] Leave a comment » By Walter E. Williams Published: Wednesday, Dec. 6 2006 12:00 a.m. MST Walter […]

FRIEDMAN FRIDAY 40 Years Later: Milton Friedman’s Legacy in Chile “Chilean Miracle” Struck a Blow against Communism When Needed Most José Niño April 22, 2015

_______ José Niño José Niño is a graduate student based in Santiago, Chile. A citizen of the world, he has lived in Venezuela, Colombia, and the United States. He is currently an international research analyst with the Acton Circle of Chile. Follow@JoseAlNino. 40 Years Later: Milton Friedman’s Legacy in Chile “Chilean Miracle” Struck a Blow […]

FRIEDMAN FRIDAY Milton Friedman came up with the NEGATIVE INCOME TAX

____ Milton Friedman – The Negative Income Tax The Conservative Case for a Guaranteed Basic Income NOAH GORDON AUG 6, 2014 Creating a wage floor is an effective way to fight poverty—and it would reduce government spending and intrusion. Swiss backers of a minimum income spread out coins in Bern. Denis Balibouse/Reuters Last week, my […]

FRIEDMAN FRIDAY Which Fed Bill Would Milton Friedman Have Liked? Posted on March 10, 2015by John Taylor

________________ Which Fed Bill Would Milton Friedman Have Liked? Posted on March 10, 2015by John Taylor Writing last week on the Cato at Liberty blog, Steve Hanke argued that Milton Friedman would have supported the “Audit the Fed” bill recently introduced in the Senate.  Steve’s reasoning is based on Friedman’s 1962 essay “Should there be an […]

5 myths that conceal reality by Milton Friedman

A great speech below: Here are the myths:Robber Baron Myth, The Cause of Great Depression Myth, The Demand for Government Service Myth, The Free Lunch Smith, and The Robin Hood Myth. 1) the Robber Baron Myth, 2) the Great Depression Myth, 3) the Demand for Government Service Myth, 4) the Free Lunch Myth, and 5) […]

FRIEDMAN FRIDAY SEPTEMBER 4, 2006 An Interview with Milton Friedman

_______________ FEATURED ARTICLE | SEPTEMBER 4, 2006 An Interview with Milton Friedman Milton Friedman* I recently sat down with Milton Friedman, a few days before his 94th birthday, to discuss the impact of two of his most important contributions to economics and liberty: A Monetary History of the United States, 1870-1960 [co-written] with Anna Schwartz, […]

FRIEDMAN FRIDAY The Social Responsibility of Business is to Increase its Profits by Milton Friedman The New York Times Magazine, September 13, 1970.

Milton Friedman on Self-Interest and the Profit Motive 1of2 Milton Friedman on Self-Interest and the Profit Motive 2of2 The Social Responsibility of Business is to Increase its Profits by Milton FriedmanThe New York Times Magazine, September 13, 1970. Copyright @ 1970 by The New York Times Company. When I hear businessmen speak eloquently about the […]

FRIEDMAN FRIDAY Levin on Milton Friedman: ‘One Thing to Have Free Immigration to Jobs, Another for Welfare’ By Michael Morris | January 16, 2015

____________ Levin on Milton Friedman: ‘One Thing to Have Free Immigration to Jobs, Another for Welfare’ By Michael Morris | January 16, 2015 | 5:12 PM EST During his show on January 15, 2015, Nationally syndicated radio host Mark Levin recalled the famed economist Milton Friedman and explored an important reason why open immigration, despite […]

FRIEDMAN FRIDAY Milton Friedman On Socialized Medicine

Milton Friedman – Health Care Reform (1992) pt 1/4

Milton Friedman – Health Care Reform (1992) pt 2/4

Milton Friedman – Health Care Reform (1992) pt 3/4

Milton Friedman – Health Care Reform (1992) pt 4/4

Nov 152014

 

A must see!

Nobel Laureate Economist Milton Friedman explores the unsettling dynamics set into motion when government imposes itself into the health care system. (1978)

Everything old is new again

– See more at: http://www.commonsenseevaluation.com/tag/milton-friedman/#sthash.cLJboBo8.dpuf

Milton Friedman on Medical Care (Full Lecture)

Published on Feb 2, 2014

The genius of Milton Friedman is that his economic insights are as powerful as they are timeless. Despite the fact that these comments were made more than thirty years ago in 1978 at the Mayo Clinic, they ring as true today as they did then. Milton Friedman’s six-part video series below on the economics of medical care is especially timely, in light of the fact that the Supreme Court ruled in favor of Obamacare this week and Milton Friedman predicted in this lecture that increased government involvement in health care would lead inevitably to completely socialized medicine. This Mayo Clinic lecture is also a testament to Milton Friedman’s effectiveness at delivering the message of individual liberty and limited government in a convincing and non-threatening way, as Milton explains diplomatically to an audience of physicians how the “power of organized medicine” led to significant restrictions on entry to their profession through the American Medical Association’s control over occupational licensing for physicians, which has contributed to the rising costs of medical care.

Milton Friedman: “I’m going to talk today about the economics of medical care. This in an area, in which we all know there has been a trend toward ever-greater government involvement. One step in this area inevitably leads to another. We have had an expansion of government involvement in the spending of money – Medicare, Medicaid funds, expenditures by the Department of Health, Education and Welfare for other medical purposes have been growing by leaps and bounds. They have gone from a very tiny portion of the total national expenditures on medical care to a substantial portion. If this trend continues, it inevitably leads to completely socialized medicine. I believe that this trend is very much against the interest of patients, physicians, and other health care personnel. And in the brief time I have to today, I want to explain why I believe the trend is so much against their interest, why it has occurred, and what, if anything can be done about it.”

Source…

– See more at: http://www.commonsenseevaluation.com/tag/milton-friedman/#sthash.cLJboBo8.dpuf

________

I have written about Obamacare over and over again on this blog. Dan Mitchell has shared many funny cartoons about Obamacare too. Milton Friedman has spoken out about government healthcare many times in the past and his film series FREE TO CHOOSE is on You Tube and I encourage you to watch it. It is clear that the federal government debt is growing so much that it is endangering us because if things keep going like they are now we will not have any money left for the national defense because we are so far in debt as a nation.

We have been spending so much on our welfare state through food stamps and other programs that I am worrying that many of our citizens are becoming more dependent on government and in many cases they are losing their incentive to work hard because of the welfare trap the government has put in place. Other nations in Europe have gone down this road and we see what mess this has gotten them in. People really are losing their faith in big government and they want more liberty back. It seems to me we have to get back to the founding  principles that made our country great.  We also need to realize that a big government will encourage waste and corruption. Also raising taxes on the job creators is a very bad idea too. The Laffer Curve clearly demonstrates that when the tax rates are raised many individuals will move their investments to places where they will not get taxed as much.

In 1980 I read the book FREE TO CHOOSE by Milton Friedman and it really enlightened me a tremendous amount.  I suggest checking out these episodes and transcripts of Milton Friedman’s film series FREE TO CHOOSE: “The Failure of Socialism” and “The Anatomy of a Crisis” and “What is wrong with our schools?”  and “Created Equal”  and  From Cradle to Grave, and – Power of the Market.

_____________________

Related posts:

Dan Mitchell on Obamacare Supreme Court Decision: “I’m disgusted that the Supreme Court once again has decided to put politics above the Constitution!” (Includes lots of videos and cartoons)

__________ Enzi statement on the Supreme Court’s King Vs. Burwell decision 5 Takeaways From Today’s Supreme Court Ruling on Obamacare Wicker Comments on King v Burwell Supreme Court Decision Senator Lankford Discusses the King v. Burwell Supreme Court Decision Congressman Steve King Response to SCOTUS King v. Burwell Ruling Obamacare and the Odious Anti-Constitutionalism of […]

Open letter to President Obama (Part 718) Cartoonists Go to War against Obamacare

Open letter to President Obama (Part 718) (Emailed to White House on 6-25-13.) President Obama c/o The White House 1600 Pennsylvania Avenue NW Washington, DC 20500 Dear Mr. President, I know that you receive 20,000 letters a day and that you actually read 10 of them every day. I really do respect you for trying to get […]

The Region – Banking and Policy Issues Magazine – Interview with Milton Friedman June 1992

______ Milton Friedman’s Free to Choose (1980), episode 3 – Anatomy of a Crisis. part 1 The Region – Banking and Policy Issues Magazine – Interview with Milton Friedman June 1992 In his new book, Money Mischief, economist Milton Friedman compares inflation to alcoholism; blames the rise of Chinese communism, in large part, on an […]

NEW RIVER MEDIA INTERVIEW WITH: MILTON FRIEDMAN Professor Emeritus of Economics, University of Chicago Senior Fellow, Hoover Institution

______ Milton Friedman – A Conversation On Minimum Wage Milton Friedman Interview Milton Friedman is Professor Emeritus of Economics at the University of Chicago and Senior Fellow at the Hoover Institution.Dr. Friedman received the 1976 Nobel Memorial Prize for Economic Science. Member of the research staff of the National Bureau of Economic Research from 1937 […]

Walter E. Williams: “Milton Friedman was an economist’s economist” Wednesday, Dec. 6 2006 1

________ Milton Friedman on Donahue – 1979 Uploaded on Aug 26, 2009 Dr. Milton Friedman, Nobel Laureate, promoting “Free to Choose” on the show Donahue. Walter E. Williams: Milton Friedman was an economist’s economist Print Font [+] [-] Leave a comment » By Walter E. Williams Published: Wednesday, Dec. 6 2006 12:00 a.m. MST Walter […]

FRIEDMAN FRIDAY 40 Years Later: Milton Friedman’s Legacy in Chile “Chilean Miracle” Struck a Blow against Communism When Needed Most José Niño April 22, 2015

_______ José Niño José Niño is a graduate student based in Santiago, Chile. A citizen of the world, he has lived in Venezuela, Colombia, and the United States. He is currently an international research analyst with the Acton Circle of Chile. Follow@JoseAlNino. 40 Years Later: Milton Friedman’s Legacy in Chile “Chilean Miracle” Struck a Blow […]

FRIEDMAN FRIDAY Milton Friedman came up with the NEGATIVE INCOME TAX

____ Milton Friedman – The Negative Income Tax The Conservative Case for a Guaranteed Basic Income NOAH GORDON AUG 6, 2014 Creating a wage floor is an effective way to fight poverty—and it would reduce government spending and intrusion. Swiss backers of a minimum income spread out coins in Bern. Denis Balibouse/Reuters Last week, my […]

FRIEDMAN FRIDAY Which Fed Bill Would Milton Friedman Have Liked? Posted on March 10, 2015by John Taylor

________________ Which Fed Bill Would Milton Friedman Have Liked? Posted on March 10, 2015by John Taylor Writing last week on the Cato at Liberty blog, Steve Hanke argued that Milton Friedman would have supported the “Audit the Fed” bill recently introduced in the Senate.  Steve’s reasoning is based on Friedman’s 1962 essay “Should there be an […]

5 myths that conceal reality by Milton Friedman

A great speech below: Here are the myths:Robber Baron Myth, The Cause of Great Depression Myth, The Demand for Government Service Myth, The Free Lunch Smith, and The Robin Hood Myth. 1) the Robber Baron Myth, 2) the Great Depression Myth, 3) the Demand for Government Service Myth, 4) the Free Lunch Myth, and 5) […]

FRIEDMAN FRIDAY SEPTEMBER 4, 2006 An Interview with Milton Friedman

_______________ FEATURED ARTICLE | SEPTEMBER 4, 2006 An Interview with Milton Friedman Milton Friedman* I recently sat down with Milton Friedman, a few days before his 94th birthday, to discuss the impact of two of his most important contributions to economics and liberty: A Monetary History of the United States, 1870-1960 [co-written] with Anna Schwartz, […]

FRIEDMAN FRIDAY The Social Responsibility of Business is to Increase its Profits by Milton Friedman The New York Times Magazine, September 13, 1970.

Milton Friedman on Self-Interest and the Profit Motive 1of2 Milton Friedman on Self-Interest and the Profit Motive 2of2 The Social Responsibility of Business is to Increase its Profits by Milton FriedmanThe New York Times Magazine, September 13, 1970. Copyright @ 1970 by The New York Times Company. When I hear businessmen speak eloquently about the […]

FRIEDMAN FRIDAY Levin on Milton Friedman: ‘One Thing to Have Free Immigration to Jobs, Another for Welfare’ By Michael Morris | January 16, 2015

____________ Levin on Milton Friedman: ‘One Thing to Have Free Immigration to Jobs, Another for Welfare’ By Michael Morris | January 16, 2015 | 5:12 PM EST During his show on January 15, 2015, Nationally syndicated radio host Mark Levin recalled the famed economist Milton Friedman and explored an important reason why open immigration, despite […]

FRIEDMAN FRIDAY Column: Don’t blame Heritage for ObamaCare mandate By Stuart Butler

Milton Friedman on Medical Care (Full Lecture)

Published on Feb 2, 2014

I have written about Obamacare over and over again on this blog. Dan Mitchell has shared many funny cartoons about Obamacare too. Milton Friedman has spoken out about government healthcare many times in the past and his film series FREE TO CHOOSE is on You Tube and I encourage you to watch it. It is clear that the federal government debt is growing so much that it is endangering us because if things keep going like they are now we will not have any money left for the national defense because we are so far in debt as a nation.

We have been spending so much on our welfare state through food stamps and other programs that I am worrying that many of our citizens are becoming more dependent on government and in many cases they are losing their incentive to work hard because of the welfare trap the government has put in place. Other nations in Europe have gone down this road and we see what mess this has gotten them in. People really are losing their faith in big government and they want more liberty back. It seems to me we have to get back to the founding  principles that made our country great.  We also need to realize that a big government will encourage waste and corruption. Also raising taxes on the job creators is a very bad idea too. The Laffer Curve clearly demonstrates that when the tax rates are raised many individuals will move their investments to places where they will not get taxed as much.

In 1980 I read the book FREE TO CHOOSE by Milton Friedman and it really enlightened me a tremendous amount.  I suggest checking out these episodes and transcripts of Milton Friedman’s film series FREE TO CHOOSE: “The Failure of Socialism” and “The Anatomy of a Crisis” and “What is wrong with our schools?”  and “Created Equal”  and  From Cradle to Grave, and – Power of the Market.

Milton Friedman – Health Care Reform (1992) pt 1/4

Milton Friedman – Health Care Reform (1992) pt 2/4

Column: Don’t blame Heritage for ObamaCare mandate

Is the individual mandate at the heart of “ObamaCare” a conservative idea? Is it constitutional? And was it invented at The Heritage Foundation? In a word, no.

The U.S. Supreme Court will put the middle issue to rest. The answers to the first and last can come from me. After all, I headed Heritage’s health work for 30 years. And make no mistake: Heritage and I actively oppose the individual mandate, including in an amicus brief filed in the 11th Circuit Court of Appeals to the Supreme Court.

Nevertheless, the myth persists. ObamaCare “adopts the ‘individual mandate’ concept from the conservative Heritage Foundation,” Jonathan Alter wrote recently inThe Washington Post. MSNBC’s Chris Matthews makes the same claim, asserting that Republican support of a mandate “has its roots in a proposal by the conservative Heritage Foundation.” Former House speaker Nancy Pelosi and others have made similar claims.

The confusion arises from the fact that 20 years ago, I held the view that as a technical matter, some form of requirement to purchase insurance was needed in a near-universal insurance market to avoid massive instability through “adverse selection” (insurers avoiding bad risks and healthy people declining coverage). At that time, President Clinton was proposing a universal health care plan, and Heritage and I devised a viable alternative.

My view was shared at the time by many conservative experts, including American Enterprise Institute (AEI) scholars, as well as most non-conservative analysts. Even libertarian-conservative icon Milton Friedman, in a 1991 Wall Street Journal article, advocated replacing Medicare and Medicaid “with a requirement that everyU.S. family unit have a major medical insurance policy.”

My idea was hardly new. Heritage did not invent the individual mandate.

But the version of the health insurance mandate Heritage and I supported in the 1990s had three critical features. First, it was not primarily intended to push people to obtain protection for their own good, but to protect others. Like auto damage liability insurance required in most states, our requirement focused on “catastrophic” costs — so hospitals and taxpayers would not have to foot the bill for the expensive illness or accident of someone who did not buy insurance.

Second, we sought to induce people to buy coverage primarily through the carrot of a generous health credit or voucher, financed in part by a fundamental reform of the tax treatment of health coverage, rather than by a stick.

And third, in the legislation we helped craft that ultimately became a preferred alternative to ClintonCare, the “mandate” was actually the loss of certain tax breaks for those not choosing to buy coverage, not a legal requirement.

So why the change in this position in the past 20 years?

First, health research and advances in economic analysis have convinced people like me that an insurance mandate isn’t needed to achieve stable, near-universal coverage. For example, the new field of behavioral economics taught me that default auto-enrollment in employer or nonemployer insurance plans can lead many people to buy coverage without a requirement.

Also, advances in “risk adjustment” tools are improving the stability of voluntary insurance. And Heritage-funded research on federal employees’ coverage — which has no mandate — caused me to conclude we had made a mistake in the 1990s. That’s why we believe that President Obama and others are dead wrong about the need for a mandate.

Additionally, the meaning of the individual mandate we are said to have “invented” has changed over time. Today it means the government makes people buy comprehensive benefits for their own good, rather than our original emphasis on protecting society from the heavy medical costs of free riders.

Moreover, I agree with my legal colleagues at Heritage that today’s version of a mandate exceeds the constitutional powers granted to the federal government. Forcing those Americans not in the insurance market to purchase comprehensive insurance for themselves goes beyond even the most expansive precedents of the courts.

And there’s another thing. Changing one’s mind about the best policy to pursue — but not one’s principles — is part of being a researcher at a major think tank such as Heritage or the Brookings Institution. Serious professional analysts actually take part in a continuous bipartisan and collegial discussion about major policy questions. We read each other’s research. We look at the facts. We talk through ideas with those who agree or disagree with us. And we change our policy views over time based on new facts, new research or good counterarguments.

Thanks to this good process, I’ve altered my views on many things. The individual mandate in health care is one of them.

Stuart Butler, Ph.D., is a distinguished fellow at the Heritage Foundation (www.heritage.org), where he is the director of the Center for Policy Innovation.

Milton Friedman – Health Care Reform (1992) pt 3/4

Milton Friedman – Health Care Reform (1992) pt 4/4

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