Understanding Money Saved

I think this is a bit of a fallacy, though I’m not sure if it’s one with a name or anything.

For instance, there’s the recent example that everyone thinks that reducing the price of health care is “good”. If we could set up legislation so that the amount spent per person was half of what it is today, that should be something we do now.

Another example is where, in the middle of a recession and when the government is trying to encourage the market to get back to trading and what not, that they give nasty looks to companies who are, say, going on all-company trips to Disneyland–even though that company performed well and was entirely unaffected by the recession.

Now, I’m fully aware of the parable of the broken window, so there’s no need to say that I’m forgetting it.

But essentially, money saved = people fired. If you got rid of every insurance company in the US and said that all health money goes through the government, then we’re talking about a major shift. Even if it reduced spending by half… Especially, if it reduced spending by half, you’re throwing half the employees of that industry out on their butts. The other half–since this is a fairly linear change of skill set–will of course be immediately rehired by the government, presumably.

Yes, if you can reduce spending or transition spending to something of more use then that’s for the best. But I often get the feeling in these arguments that people have a disconnect between lowered-spending and the employment rate. If all companies cease sending their people on a company picnic, then you’re catering businesses out of business. You’re not saving money, you’re putting people out of a job.

Given a long enough transition period, yes you can move that money to something more efficient and get those people re-hired doing something more useful than breaking windows, BUT it’s very shortsighted to think that there isn’t going to be a transition period of several years during which bad things happen.

For issues that effect large segments of the economy, what your end goal is, is just as important as making sure you have a plan to transition from here to there in a fluid way–especially when you’re sitting in the middle of a recession already.

Hmm, good points and terrific ideas. I agree that we should restructure our economy in a less efficient fashion so as to preserve jobs and to this end I propose that we outlaw copy machines as well as printers and software capable of printing out more than a single copy of a document. Once we’ve outlawed copy machines, corporations will simply be forced to hire on plenty of new workers to carry out their copying tasks by hand illustration or to sit there and hit the print button. Sure, people used to the convenience, accuracy, speed, and low cost of their former copy machines will be slightly annoyed, but in short time we’ll manage to quickly produce a vibrant, “recession-proof” industry in hand copying objects or hitting the print button.

I’m glad that you’ve cited the Broken Window Fallacy, but I’m not sure that you’ve fully appreciated the entirety of the argument it makes. Money saved on health-care premiums will be money available for corporate or consumer spending.

The creative destruction of capitalism will have to continue on. Technology is advancing quickly and actively choosing to hinder the pace of its progression will produce a backwards economy incapable of competing globally in very short order.

Both Sage Rat’s and threemae’s posts contain part of the story. If health care administration were taken over by the government and made more efficient (a highly suspect assumption), then yes, a certain number of people would be laid off. They would then have to find other work, or retrain for a different line of work. In typical economic theory, they would either learn new, more productive skills, or apply their existing skills to their next best opportunity. So, society as a whole would be a net beneficiary (old level of health care production + new production of laid off workers), even though the laid off workers themselves would experience (hopefully) short-term pain. Such is the nature of progress.

I think it’s foolish to think any major change will not have some negative impact on someone, somewhere. I have actually given thought to employees of private insurance who may lose jobs, as well as to the companies themselves. I just don’t see how most private insurance companies can compete with a public option. I think the private insurance industry is going to end up hurting, big time.

Know what? I don’t care.

If someone loses his/her job at ABC insurance company, that’s bad. If someone loses his/her life because they’ve got cancer or diabetes, that’s worse.

I also do not feel inclined to help out private insurance companies. Just like Wall Street, the top executives are a bunch of greedy little boys who have invented shady ways to increase profits with no regard for the well-being of consumers and really, not even concern for the long-term best interests of their own companies. “Wealth” has been created for a handful, and it has brought our entire economy crashing down around us. People talk about private insurance companies only making a profit of around 3% (I have seen that figure in a couple of threads here, but haven’t looked for a cite), but they don’t talk much about the top executives earning literally thousands of dollars per hour.

After spending the past couple months trying to educate myself on healthcare reform, what it’s come down to, for me, is the choice between protecting the lives and financial well-being of average Americans, or protecting the status quo of private companies that simply are not meeting the needs of all Americans. In other words, between healthcare and wealthcare.

I pick healthcare.

You are talking about the paradox of thrift. Basically if everyone saved all their money and didn’t spend, the demand would drop exacerbating the recession.

Critics of the theory point out that savings is not the same as just stuffing money under the mattrass. Savings represents loanable funds so an overall increase in savings would serve to increase the money supply and reduce interest rates. This would encourage borrowing and related growth. Also a decrease in demand would result in a drop in prices, also encouraging spending.

Unless you are a shareholder, no one cares what looks you give. But the reason that people have an issue with these corporate boondoggles is that the money spent on those trips could have been better used somewhere else within the company. Generally there is little to no business value in flying your company out someplace where they can spend a weekend playing golf and getting wasted.

[Tangential] Healthcare cost and private insurance are not linked. No country has switched to universal health care and reduced their spending. Both Israel and Switzerland only have private insurance while also having full universal health care, and both come in at the same price as other European countries.[/T]

The OP is not talking about health care or company picnics, however. It’s just pointing a fallacy of ignoring the transition period. Transitioning to something better is always good. BUT, you need to be mindful of the real world effects of change, not just the theoretical/mathematical viewpoint where numbers don’t equate to anything real.

If you shut down an entire industry overnight, you’re probably going to cause more deaths than are lost to inefficiencies in our current system. The number of people who actually die due to the lack of UHC is probably small enough that suicide, drunkenness, turmoil as the medical world is turned upside down because everything to do with administration has changed, etc. are probably going to cause more deaths. The US will have to go even further into debt to try and boost the economy as it crumbles again. This ruins the world economy even more, which ends up killing a whole bunch of people in Africa because care packages from the Western world dry up temporarily.

It’s really not a good picture.

You can’t just pick an end-target and then ignore the real-world ramifications of destroying $1,137,500,000,000 (half of all American health care per year) temporarily. One trillion dollars worth of labor, gone, you’re not going to have things bounce back in a month. We’re talking something like 45,500,000 people out of work, or an extra +8% unemployment. The current recession has already caused about +4% unemployment. You add another 8% and you’re going to be having Americans starving to death for the first time in 70+ years.

These are real numbers. They have real effects and the worst thing that can happen is for no one to realize this until things have already started to go to shit, like it did with the housing crisis. You need to foresee it and you need to do some math before making sweeping changes.

Maybe the market can bear it. Maybe it will save more lives in the long run. But you don’t know that if you haven’t actually run the numbers, worked out a couple of scenarios, and figured out the likelihood of each of them. And if you can accomplish the same end-goal without having to tear up what’s already in place; if you can modify what’s already there; if you can wean the process from point A to point B, then you can dial in on the safest option. There’s no need to be just intelligent enough to know what you want to achieve in the end. You might as well be fully intelligent and work out a full plan that takes into count reality.

The value is in keeping your workers engaged and excited about work, theoretically.

But if the company doesn’t spend that money on their workers because they got nasty looks, probably they’re just going to sit on it, which is a bad thing to do. If they spent it on something that was even better than a company picnic, then theoretically this might be better, but that really gets iffy. That company not going on that picnic might be the straw that broke the back of the catering company. The +0.1% increase in sales of the original corporation doesn’t balance the collapse of a second, large business.

But the paradox of thrift, still, doesn’t really apply to this situation. It’s a view of a perfect, magical economy where money and people just transition from point A to point B without having to train, or having to sit around home sending out resumes. It doesn’t take into account the idea that a company with revenue of $10,000,000 a year is alright, but a company with revenue of $9,000,000 is going to go bankrupt and collapse, firing everyone. It doesn’t take into account the tendency of the market to shrink far beyond the actual risk of a negative event, because panic sets in.

You need real world and human elements or you’re making the same mistake as Karl Marx: True economics would be closer to the study of psychology than to fluid dynamics.

Wait, what? I’m not understanding this. Are you suggesting that there will be a rash of suicides and alcohol-related deaths because people lost their jobs with private insurance companies? And that pandemic of suicides will outnumber the people who die when they would have lived if they had had insurance? Because that seems…impossible. I know there have been some suicides of people who have lost jobs in this awful recession, but why are people more likely to commit suicide if they worked for insurance companies and lose their jobs? And what about people who commit suicide because they’re really sick and don’t have insurance?

I think I may be misunderstanding you, because this scenario seems…incredibly unlikely. If I’ve gotten it wrong, please let me know.

Again, I apologize, but I don’t understand this. Are you saying that passing a healthcare reform bill as President Obama described Wednesday night would put 45.5 million people out of work? Where did you get this number?

Also, I don’t understand where the dollar amount ("$1,137,500,000,000 (half of all American health care per year)") came from. Is this the amount you’re saying we will “save” (in other words, the amount of money that will be taken out of the economy, if I am understanding your main point) if healthcare reform passes? Where did you get that number?

I did the bolding.

I agree with all of this. You and I are essentially on the same page, I think, in that we both know that even positive change is likely to bring some negative outcomes, that pragmatism demands that we think things through and not progress with abandon and without caution just because we want to help people. The road to hell, and all that.

But from what I’ve learned, it seems to me that the bolded part of your quote is exactly what the healthcare reform bill is doing. So, I am as happy with what I’ve learned as I can expect to be, given that the country’s broke and I’m not happy to have to add spending.

Maybe another way to look at, which might be helpful, is that it would have been foolish to rail against the introduction of the lightbulb because it would put candlemakers out of business. Not a great analogy, since we’re talking about the same “product” (health insurance), but the point I’m trying to make is that sometimes ya gotta let stuff go to move ahead.

Isn’t the impact supposed to be just to the profit margin of insurance companies? Many of the laid-off workers will find employment in one of the many new federal agencies that will be created to manage UHC. Existing skills, just relocated. Working (probably) at similar wages, but since the government isn’t supposed to make a profit, we get a net savings. As long as the federal workers aren’t unionized, we should end up in decent shape according to my crystal ball.

We are starting out with a false premise. The outrage was over companies that weren’t profitable, accepted public funds to rescue them, then went on junkets.

As to UHC cist savings, some of it is from cutting out the insurance middlemen and some of it comes from streamlining doctor’s offices which won’t have to deal with multiple insurance companies with different billing rules. Same at pharmacies.

Yeah, I’m aware of this. But the gains in ease of entrepreneurship seem to me to outweigh jobs in this sector. The sector’s been growing over the last twenty years, & some of us feel it’s been a mistake to put so much of GDP in it.

Two things come to mind, though. One undercuts your argument & one undercuts mine.

  1. Less revenue doesn’t always mean fewer jobs. It may mean lower compensation for individuals.

  2. There is the risk that we don’t really have overinflated health & health insurance sectors, but we have what was already a collapsed economy outside of those. We’re not paying too much, we’re making too little (in more senses than one).

And then I remember that health insurers don’t actually provide any value to the consumer that health care providers couldn’t provide on their own, or patients couldn’t gain with a co-op system. So if we simply dump the owners & the profit center, we’re not so much costing jobs as gaining more money to spend on other, more constructive purchases.


True. And also some money is destined for future projects or loans or whatever that haven’t taken place yet. In that case, jobs aren’t lost so much as they just aren’t created.

I agree that it’s not a 1 for 1 sort of thing, but I would rather people are aware that shifting meaningful percentages of the GDP around is going to cause turmoil unless you do it gradually and/or you have a plan set up to directly transition not just the money but the actual workers who will be affected to their new roles.

I’d rather not get too drawn in to the topic of health care. There’s plenty of threads on it.

As an alternative subject which could be used as an example, we could discuss a proposed law that went something like, “The US government may not act to prevent industries/corporations which have become uncompetitive from collapsing, but they may intercede to manage the smooth transition from old industries to new.” For instance, if we can safely say that a gas-based economy is dead, we can’t try and prop up failing gas companies. However, we can set up a plan to shrink that market in a managed fashion so that cheap battery-powered cars don’t throw millions of people out of work overnight.

Sage Rat, did I misunderstand you earlier? I was looking forward to reading your answers to my questions in post #8.

The average yearly salary in the US: ~$25,000
Average spending per person per yer for health care: ~$6,500
Number of people in the US: ~350,000,000

Total health spending, per year = $6,500 X 350,000,000 = $2,275,000,000,000
Total health spending per year, if halved = $2,275,000,000,000 / 2 = $1,137,500,000,000
Average number of people being employed by half the total health care spending in a year = $1,137,500,000,000 / $25,000 = 45,500,000

Now, in reality, this value will be spread across a variety of sectors. It will effect far more than 45.5 million people, though on some sort of curve where some do lose their job, and others simply lose a small amount of their business. So you won’t actually see 45.5 million unemployed, but an equivalent value of labor will have been effectively laid off if you could actually half the US health care spending in one fell swoop.

While this criticism is correct if savings are not hoarded, there is a strong assumption there that savings are saved in a loanable fashion (i.e. banks, etc). That is not a bad assumption for a well-developed economy, but becomes rather dodgy for other situations. It also assumes efficient money markets, which may be a strong assumption as well - as recently seen - in markets afflicted by systematic crises of confidence. E.g. if banks are unwilling to lend and have some alternatives (or so fear ongoing losses relative to capital cusion, they hoard liquidity), interest rates may not decline enough.

On the Gov provisioning of healthcare admin, it would seem to me that on any given private company comparison basis, that it is highly unlikely that a government administered programme would be more efficient. It is possible, in an inefficient (or non-competitive) market that a monopolistic provider of admin services (the Gov) might be more cost effective and (globally) cost effective than the aggregate of private actors, in particular as compared to an oligopoly.

I look forward to those trillions of dollars that will no longer go to healthcare being used to bolster other areas of our economy.