A recent Wall Street Journal article by Brett Arends titled Is Socialized Medicine Bad for Your Wealth? examines the impact of socialized medicine on your wealth and argues that it may not be so bad after all.
To hear some people tell it, the health-care bill will destroy America and your stock portfolio. We will become a “socialist” country. You should sell everything, put your money in gold, cash or foreign stocks, and run to the hills.
It’s hard to get past the hyperbole and partisan hysteria on this topic. But if we take the calm view, what, if anything, would the bill mean for your investments?
When we discuss wealth, we must keep in mind that we’re not discussing investments exclusively. Wealth takes many different forms, and the ability to generate wealth in the first place is what gives us the ability to make long-term investments. The recently passed health care legislation places an almost instantaneous tax on Americans, even though they will see no benefit from this new tax for at least four years when the law is to be implemented nationwide.
This instantaneous tax burden will have an immediate impact on Americans’ take-home wages, as they will now be paying not once, but twice for the same health care policies they already maintain through employers or private insurers. The mathematics are clear in terms of wealth generation. When you are taxed more today than you were yesterday, you have less money to invest into your business or long-term retirement plan, thus the building of wealth is inhibited.
To start with, we don’t really know what it will do to the deficit. The Congressional Budget Office Thursday projected the bill would cut deficits by $138 billion over 10 years. There will be a lot of detailed debate about these forecasts and the assumptions underlying them. Most of it will be pointless.
If history is any guide, then this government entitlement program, like social security, will eventually become unmanageable, and like social security, will eventually go broke.
The deficit, however, is not necessarily our only concern. In addition to our federal deficit, which measures the amount of money we spend in one year compared to how much the government takes in, we must also consider our federal debt, which is the amount of money the federal government owes to lenders at any given time. Social security, for example, has $2.5 trillion in IOU’s that it is now beginning to cash in to cover its payments. Each time they cash in an IOU with the federal government, it adds more to what we owe to lenders, as the government must borrow that money from somewhere, or print it themselves. This has an inflationary impact on the US Dollar, which lowers your purchasing power, and thus, your wealth.
Health care costs must be considered over the long-term. Even if the CBO numbers are right for the next 10 years, the CBO itself has said that it is impossible to predict exactly what the costs will be after 2020. We must not be short-sighted here. It has taken social security over half a century to go bankrupt, and in the very near future those expecting continued benefits may pay the price with lowered benefits in real money terms. If health care is a program that purports to fundamentally change America for decades to come, then we need to understand its long-term effects on generational wealth building, which will affect not just us, but our children and grand-children.
One usually expects huge deficits to lead to inflationâ€”and that’s a major concern in this environment. You should be very wary indeed of holding most long-term bonds, the investment most at risk from rising inflation. But you should have been wary before this bill.
On the one hand Mr. Arends bespatters fleeing to gold for safety, yet gives investment advice that essentially says get out of the dollar because bond prices are going to be destroyed as a result of rising inflation.
Most contrarian investment advisers are not suggesting, as Mr. Arends would have you believe, that you should sell everything you own and buy gold. But making investment considerations with rising inflation in mind would certainly be prudent. And when we think inflation, gold, commodities and hard assets come to mind.
Maybe it [health care] will do nothing to fix a disastrous situation. But sooner or later that’s going to have to be fixed anyway. Make of it what you will, but advanced countries with more direct government control over health-care costs have clearly done a much better job of controlling those costs.
Fill in the blank: If I had a medical emergency, the country I would choose to live in would beÂ ___________.
If Mr. Arends is talking about Canada, the UK, or perhaps China, then we suppose that it can be argued that costs have been controlled. But to cut costs, you must cut services and such effects on the overall quality of care are evidenced by Canadian Premier Danny Williams’ recent trip to the United States to have heart surgery. According to Williams, his “personal health trumped any public fallout over the controversial decision.” On paper, cost controls sound great, until you start to consider the off-paper, real life implications of such measures – even the leaders of these countries are afraid of the medical care they will (not) receive.
Yes, we need to fix the system. But socialized health care is not the only solution that should be considered.
Will the bill really “turn America into a socialist country”? It’s easy to laugh at this notion, of course, but let’s look at it from another point of view. Even if that were correct, should you really sell everything and flee?
Socialism, or social democracy, or whatever else you want to call it, doesn’t seem to have hurt stockholders overseas too badly. Over the past 10 years, according to MSCI Barra, stock markets across socialized Europe have produced total returns of about 2% a year in U.S. dollar terms, according to MSCI Barra. The figure for France is just over 2% and for left-wing Britain and Holland nearer to 3%. Pinko Denmark has boomed by 10% a year.
Meanwhile, here in the land of the free, investors have made zero.
With the Euro inflation rate running an average of around 2% over the last ten years, investors in European stock markets have made about nothing in terms of building real wealth. And if the MSCI Barra index is using today’s stock market prices, then yes, we could see how they might be up an average 2% per year. But with doom looming in EU member countries like Spain, Italy, Portugal and Greece, and continued destruction of wages overseas, should we really expect positive wealth building going forward in these socialist countries? Historically, socialism has led to wealth destruction, no growth, and Europe over the next couple of decades will be no different.
And even if Europe had seen positive, real gains in wealth over the last ten years, is Mr. Arends suggesting this is a long enough time line to determine whether a social democracy, or socialism, is a better form of government than a true free market capitalistic republic?
The fact is that the land of the free is not Europe – it is the land of the free. And if Mr. Arends and those who follow his line of thinking would like to live in a social democracy they will first have to convince 3/4 of These United States to change the constitution.
As much as some Americans would like to burden other Americans with their so-called right to health care, the constitution gives the government no such power, and as such, mandated health care is an unlawful act. As a one of our readers at SHTF Plan recently pointed out, “No right places a burden on others,” and this is exactly what the health care bill and other entitlement programs attempt to do.
It’s true, everyone has a right to health care. But not at the expense of others.
This fundamental concept here in the land of the free is non-negotiable. There should be no “going across the aisle” to find solutions that put a burden on one group of people to help another. Crossing the aisle in such a way would mean abandoning the land of the free for the land of spreading the wealth.
To build wealth in America we must return to a truly free market economy, with very limited government regulation. The free market, as some would have you believe, has not failed us. Our free market has been infiltrated by socialist policies of entitlement and central government planning over the last 100 years. We are already living in, as Mr. Adrends put it, a social democracy in America. We can argue about the virtues of 2% nominal gains in Europe vs. the United State all we want, but to build real wealth, we need to digress from the progressive policies in the past.
Howard Katz, in a recent article, compared the 19th century free market systems of America and Britain to the rest of the world:
As I noted last week, the free economy of 19 th century America had so little unemployment that the language did not even have a word for it until the 1870s. It also produced more wealth than any other society through the entire course of human history. Even this understates the case. Britain and the Commonwealth countries also had a (largely) free economy differing only in having a central bank. And if one compares the English speaking world of that period with the rest of mankind, the wealth gap is absolutely amazing. The English speaking people not only beat the rest of the world. They ran away with the prize.
Forget about the illusion of wealth building at 2% a year while inflationary monetary policies eat away any real gains in your investments.
Focusing on returning to what made America great in the first place is the real wealth builder – our individual right to choose and to be responsible for ourselves, without burdening our fellow citizens by forced government mandates.