If one were to make a list of the three spending categories that bedevil the average person’s budget, the list would read as follows: healthcare, housing, and education.
Now make a list of the spending categories where federal and state policies have most actively attempted to improve affordability, and three race right to the top: healthcare, housing, and education.
Quite a coincidence, isn’t it?
When I entered college in 1976, the following were true:
• Annual cost of healthcare per person: approximately $690
• Median home value: approximately $44,000
• Average annual cost of a four-year private college: approximately $10,700
• Average annual cost of a four-year public college: approximately $1,200
• Average annual salary: approximately $9225
It was, therefore, quite possible—if one was careful with money—for the average person to obtain healthcare, find somewhere to live, and obtain an education at a public college or university. Purchasing housing and funding an education did, of course, require some borrowing and some hard choices about where and how to spend, but a comfortable life with reasonable aspirations was available for individuals who were willing to work hard and make sacrifices in pursuit of their goals.
Nothing was easy, nothing was guaranteed, and nothing was free; however, everything was possible for those with initiative and perseverance. Obviously, this is no longer the case. Although local conditions and circumstances vary somewhat, the aspirations of average American are being crushed by the onerous costs of healthcare, housing, and higher education—the expenses associated with these essentials having far surpassed both the CPI and personal incomes. What happened between 1976 and today, and what role did government play in advancing—or impeding—our dreams?
The short answer is that government “helped” you—but not in the manner you expected. Instead of improving affordability by allowing transparency and market-based efficiencies in these three critical areas of the economy, heavy-handed and clumsy government interventions have completely obliterated honest and open markets driven by basic value and sensible pricing. Healthcare, housing, and education are now almost wholly controlled by rules and regulations that are written and interpreted by unelected bureaucrats at the behest of elected officials who are beholden to their campaign contributors. Given how disconnected from economic reality our healthcare, housing, and education markets have become over the past few decades of government interference, any attempt to allow them to operate independent of supervision and—more importantly—the overt and hidden price supports now baked into the system will surely lead to startling price deflation across these three sectors that will rattle the very foundations of our economy, financial systems, and society.
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The explosive growth of the cost of healthcare is obviously affected by the simple fact that the average American is older than 40 years ago—therefore, requiring more healthcare. However, it is also a fact that Americans pay far more for exactly the same procedures, medications, and services than any other developed nation in the world; an aging population does not, therefore, tell the whole story. We should instead look at the manner in which governmental policies have disastrously skewed the health insurance market by promoting fee-for-service reimbursement (which perpetuates endless medical “churn” to drive up provider incomes), poor internal controls to identify fraud, and virtually non-existent efforts to control costs—producing an almost perfect mechanism for driving up healthcare costs for everyone.
Moreover, the politicization of healthcare through government interventions—Obamacare being the most recent and visible example—causes what should be a free market to be captured by special interests and lobbyists whose sole concern is making certain that the gravy train keeps rolling so that profits can endlessly rise. This fatally flawed public marketplace, of course, affects the private healthcare sector in turn because all the rules and regulations written by state and federal legislators affect both—and focus almost exclusively on expanding access with almost no concern for costs.
As a result, whether it comes out of our own pockets or is “free” healthcare paid through taxes and government borrowing, every aspect of American healthcare costs more and more—yet our health outcomes compared to the rest of the world lag further and further behind because the system is driven by a quest for profits rather than outcomes. A system that benefits itself by paying for a heart transplant instead of a health club membership is not serving the public’s interest, and the glacial movement towards reimbursement models that incentivize patient outcomes and pay a flat annual amount per patient rather than allowing every separate service to be endlessly billed through a fee-for-service model are wonderful, but their growth is held in check by the political capture of the healthcare market by powerful corporations and interest groups that buy the legislative process with their campaign contributions.
Not surprisingly, decades of “reforms” have seemed to do little to help the actual patient—but they always line the pockets of the pharmaceutical industry, big hospital conglomerates, specialty care providers, and durable medical equipment manufacturers. Today healthcare costs absorb 18% of our nation’s entire Gross Domestic Product and cost over $10,000 per person, which is twice the average for other developed countries.
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The catastrophe of government efforts to improve housing “affordability” would require an entire bookshelf to detail, but we can easily see the broad outlines of the problems that have been created in three areas.
Public housing—the signature effort of government to help provide homes for the poor—has obviously contributed to urban blight, crime, and a host of social pathologies while trapping generations of Americans in conditions that are little better than prisons. This all has, of course, been facilitated by a political process that rewards insiders and campaign contributors with lucrative contracts, politicians who are happy to cut ribbons yet are be nowhere to found when roofs leak and furnaces malfunction due to shoddy construction and maintenance, and the sheer magnitude of government incompetence—quite a toxic brew.
In addition, government lending programs have for decades encouraged the more affluent to flee their poor neighbors by creating swathes of new housing stock that lock out the unfortunate and actively discourage any attempt to create mixed-income neighborhoods. The result of decades of these programs and incentives has been the creation of suburban and urban mono-cultural monstrosities that allow developers to turn a nice profit yet contribute to cruel segregation driven by income levels that serve to only more thoroughly isolate the most vulnerable families based on their credit scores. The endless sprawl that results also drives the building of expensive and expansive infrastructure to support this insanity—legacy costs we pay for through escalating property and state taxes that many can ill afford on top of their mortgages.
Finally, the ruthless suppression of mortgage rates to improve “affordability” has encouraged ruinous speculation through “house flipping” that has enriched a few but further ratcheted up prices and inflated a series of housing bubbles that have resulted in real estate crashes that always seem to lead to taxpayer bailouts of lenders stuck with a fistful of non-performing mortgages. Government policies that turn basic shelter into a crazed casino of greed serve some well but cause widespread damage to the social fabric of our nation. Today the median price of a home in the United States has hit $345,000—which places an unconscionable strain on families struggling just to get by.
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Education is, sadly, perhaps the most pungent example of the harm government efforts to “help” can cause. Briefly, the federal government decided decades ago that the best way to help students to afford education was to facilitate their transformation into debt slaves. Between the mid-1970’s and today, the aggregate subsidized loan limit for the Stafford Student Loan program jumped from $10,000 to $65,000, thus allowing colleges and universities to dramatically and unconcernedly raise tuition, room, and board prices because students could, after all, simply borrow more to cover the increased costs.
However, just in case students want to go all in on that Art History degree and graduate school, students can now blithely sign away their futures with additional unsubsidized loans up to a total of roughly $138,000 in borrowing. In addition, let’s not forget those lovely Parent PLUS loans that help college and universities to destroy the golden years of mom and dad by allowing them to accrue their own crippling debts to help pay for the salaries of an army of Assistant Deans and the whirlpool tubs in the new Student Center. It seems little wonder that college enrollments are dropping nationwide. All this “affordable” education is destroying the financial futures of generations of Americans by impoverishing both the young and the old—a disaster that has led to a terrifying total of over $1.4 trillion of student loan debt.
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In short, decades of government efforts to make healthcare, housing, and education more affordable have been a costly and damaging constellation of failures that have enriched a few and emptied the pockets of everybody else. Given the inherent unsustainably of these markets absent increasingly intrusive and expensive government programs, one can easily foresee a point in the future when they can no longer be propped up.
There is an old saying: Only when the tide goes out do you discover who’s been swimming naked. As government debt and voter frustration grow, the chances that we will be forced to reckon with long-hidden price realities in healthcare, housing, and education looms ever larger. This will be an unpleasant and unwelcome wake up call for many who were led to believe in values that were artificially created and expensively maintained, but it is likely to soon become an unavoidable reality.