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Brooks Wilson's Economics Blog: Warren Buffett As General Bullmoose?

Monday, March 1, 2010

Warren Buffett As General Bullmoose?

Li'l Abner was a comic strip that ran from 1934 through 1977.  One of the characters was General Bullmoose, the epitome of a greedy, ruthless businessman, based on Charles Wilson, a former head of General Motors and Secretary of Defense under President Eisenhower who quipped before the Senate, "What is good for the country is good for General Motors, and what's good for General Motors is good for the country."  General Bullmoose's tag line was, "What's good for General Bullmoose is good for the USA."

Warren Buffett, a very smart man and our country's most successful investor in the past 50 years, and comparing him to a cartoon character is not fair, but his recent statement on health care reform captures a Bullmoose like quality.  AP Business writer, Josh Funk, reports on Buffett's statement ("Buffett says health care costs hurt US economy").
OMAHA, Neb. (AP) -- Billionaire Warren Buffett says health care costs are a major drain on U.S. businesses and act like an "economic tape worm."

The head of the holding company Berkshire Hathaway Inc. said Monday on CNBC that America's health care system needs fundamental reform to attack costs because it's not practical to continue devoting roughly 17 percent of the nation's gross domestic product to health care.

Buffett says much of the rest of the world is paying about 9 percent of their GDP on health care and have more doctors and nurses per person.

He says he hopes Congress will develop a new health care reform proposal that will restrict costs more than any of the current plans would.
First and foremost, if markets are functioning well, it is none of his business, or the business of anyone in the government, how much of a worker's wage he or she chooses to devote to health care.  If markets are not functioning well, the government may have a role in improving market structure.  Given that one element of that structure, tax benefits for health care payments made through an employer, causes distortions and reduces consumer incentives to monitor costs, it seems straight forward where reform should begin.  The payments should lose their tax benefits or all health care payments should be granted the same advantage. 

Second, I would like to see evidence that the portion workers' wages are "an economic tapeworm" eating at our nation's competitiveness.  If the reference is to unionized rust belt manufacturers, the government again has some responsibility having granted unions cartel like privileges during the Great Depression.  Many American firms that pay high salaries are prospering, take Google or Microsoft as examples.  I would bet that these firms and most our successful firms pay high salaries with generous benefits. 

Finally, the health care reform before Congress does not cut costs, it reduces payments.  If the reform passes, and a committee is used to ration health care, it will still cost as much for a procedure but fewer people will meet the committee's guidelines.  If the government attempts to pay less for the procedure, the supply of doctors willing to provide the service at that price will decline and a shortage will ensue. 

Many people mistakenly believe that rich business executives must like markets, but this is only conditionally true.  They like whatever makes them richer; if that's bailouts, other types of corporate welfare, taxes on competitors, or markets, it's all good.  Buffett did tell us something important.  The health care reform is corporate welfare as well as consumer welfare.  Because there is no such thing as a free lunch, we have to ask, who will pick up the tab?

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