Future Directions for Health Savings Accounts
New topic 2016-03-29 20:37:09 description
The task I set for myself was to design a cheaper better system of funding healthcare, utilizing individual accounts rather than government ones, and collecting compound interest rather than borrowing. Here it is, warts and all. And in retrospect, it isn't politics which worry me, so much as unforeseen consequences.
Always the first is the consequence of getting what you wish for. If compound interest pays for most of essential healthcare, will non-essential healthcare just take its place? Is the appearance of being free always invincible? Second, if we generate the funds for 16-18% of the gross domestic product, will the economy shrink by 16-18%, or grow by 16-18%? That is, would these proposals be inflationary, deflationary, or neither? I have no experience in such matters, although I have lots of experience reading nonsense on the editorial pages of distinguished media. In fact, I briefly served on the editorial board of the largest newspaper in America, and consequently, have some reluctance to accept opinions from that direction. In fact, I indirectly experienced the theories of John Maynard Keynes at work in two severe depressions and one devaluation of the currency, and am not a fan of his for the long run.
Maybe no one knows the answers, and careful study of pilot projects is the best you can expect for guidance. In the other direction, I was personally instructed in the economy by William Niskanen, couldn't understand why he said what he said, and later found he was probably right. So I can't trust my judgment about whose judgment to accept, and perhaps no one knows for sure. But it seems reasonable to ask what experts seem to think about the effect of these ideas on the currency, and on the economy.
For example, if our economy is based on bank debt, and bank debt supports several times its value in "credit" issuance, and if the Federal Reserve is unable to force inflation to 2% by some weird definition of inflation, what will happen if we remove 16-18% of GDP?
And finally, I have an idea which may be hare-brained and don't trust my judgment to advance it too openly. If we are moving toward index funds as the best available way to participate in an advancing economy, I am certainly advising folks to add several trillion dollars to the number of index funds in their Health Savings Accounts. The last I heard it was $30 billion and comparatively little of that is in index funds. But with a 90-year horizon, these accounts justify a very large equity proportion. Is it a good thing to leave so little residual stock in the hands of people who vote the underlying shares? Where does that lead us? If we are looking for a monetary standard, wouldn't index funds of our whole economy serve the dual purpose of universal desirability and flexibility?
So all that leads in entirely unexpected directions. We now have 8000 tons of gold which are supposedly unattached to the currency, and leads some commentators to say we are on a gold standard without admitting it. I have no idea whether that is a correct interpretation, but I remember the gold standard was criticized as being too inflexible, too much at the whim of some bearded prospector discovering a boatload of it somewhere, and too little connected to the real economy. If that is so, what is wrong with using index funds as a currency standard, to supplement or supplant the inflexibility of gold? What seems to be wrong with it is it effectively puts the money supply in the hands of the Legislative Branch. But if the gold in Fort Knox were used to sterilize that tendency, perhaps the money supply could regain its independence. If index funds grow much bigger it will be hard to corner the market or manipulate the price. The market price of index funds (the second dilution of control) certainly is related to the ups and downs of the stock market, if flexibility is what we crave in a currency standard. And if people follow the advice of this book, there will eventually be three hundred million owners of index funds, who can certainly impose their will on politicians through it. Would that be good or bad? As they say, it's beyond my pay grade.
Originally published: Monday, April 11, 2016; most-recently modified: Wednesday, June 05, 2019