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October 13, 2014

Pebbles for Dollars

It is now widely claimed that the Affordable Care Act is creating jobs. If we pay five hundred people to drop pebbles in a parking lot, and we pay another five hundred people to pick them up, we can create one thousand jobs. Such is the thinking of those who believe the law creates jobs.

In his recent article entitled “How Much Will Expanded Medicaid Cost Kentucky?,” reporter John Cheves of Lexington’s Herald Leader revealed that some economists do not take accounting, which teaches both sides of the ledger. Money spent by government must come from somewhere, like taxes and tariffs, or it is created out of thin air, which decreases the value of the money already in circulation. Energy is booming, yet gasoline is still over three dollars per gallon, partly due to money-printing and dollar devaluation over the last several years. Paying your debts with devalued money gets you something for free, so governments have a habit of doing it.

One would think the recent failed government “stimulus” would at last drive a stake into the heart of Keynesianism, the delusion that government spending creates lasting wealth and jobs. If this were true, how did America get built before the 1930’s, and why do we not always have stimulus? Of course the Affordable Care Act will create more health care jobs, and goodies for constituents, but it comes at a cost.

One cost is the damage to the medical profession, with demoralized doctors now being herded like cattle. Another is the massive wealth transfer from the middle class to the lower class through higher copays and deductibles. The biggest cost is the other side of ledger, which Mr. Cheves’ economists are ignoring- the new federal debt required to create those jobs.

Government debt is future taxation on the private sector, levied directly on wages and profits or indirectly through inflation. Every dollar spent by the ACA is ultimately a dollar taken from the wealth-creating private economy. No one can say what that private dollar would have done as a capital investment. But when the government spends money to “create” jobs, the politicians can say: “Look at this person who is now working, and look at these people who now have health care.” New York just spent over one hundred thousand dollars per job in a solar panel deal with Tesla CEO and crony capitalist Elon Musk, who had just penned a more expensive deal with Nevada to make batteries.

There is no denying what is front of your eyes, like a battery factory and the people working in it, or a free trip to the doctor, but the trick is to imagine what you cannot see- all of the things that might have been accomplished had the capital been spent privately. At least something tangible will come from Mr. Musk’s factories, unlike health care spending which, like food, is consumed, leaving little of tangible monetary value. Rare is government money spent more wisely than private money, and even rarer is a man who spends another man’s money more wisely than his own.

Instant gratification is the norm for politicians and those who live by the sweat of another man’s brow, or worse, the sweat of their children’s brows. The ACA is just another expansion of the entitlement state at a time when nearly half the people already do not pay federal income taxes. It is now even more unlikely that the people will elect politicians who will bring the nation’s finances under control. A dollar worth a pebble seem inevitable.

What will happen when the federal government cuts subsidies to Kentucky’s Medicaid program in a few years? By its own admission, the administration Governor Steve Beshear does not know. When the crunch comes, they will no doubt be living on a beach. A better question is: “What will happen to Kentucky Medicaid when interest rates return to normal, historic levels and the interest on the national debt consumes the federal budget?”

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